Item 1. Financial Statements

285K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

Consolidated Balance Sheets


Dollars in millions, except per share data	September 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Cash and due from banks	$	717	$	913
Short-term investments	4,896		11,010
Trading account assets	1,068		701
Securities available for sale	40,000		45,364
Held-to-maturity securities (fair value: $7,596 and $7,665)	8,163		7,539
Other investments	1,272		639
Loans, net of unearned income of $326 and $373	116,191		101,854
Less: Allowance for loan and lease losses	(1,144)		(1,061)
Net loans	115,047		100,793
Loans held for sale (a)	1,048		2,729
Premises and equipment	629		681
Goodwill	2,752		2,693
Other intangible assets	106		130
Corporate-owned life insurance	4,351		4,327
Accrued income and other assets	9,535		8,265
Discontinued assets	467		562
Total assets	$	190,051	$	186,346
LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts	$	84,168	$	89,207
Savings deposits	7,860		7,503
Certificates of deposit ($100,000 or more)	1,269		1,705
Other time deposits	4,578		2,153
Total interest-bearing deposits	97,875		100,568
Noninterest-bearing deposits	46,980		52,004
Total deposits	144,855		152,572
Federal funds purchased and securities sold under repurchase agreements	4,224		173
Bank notes and other short-term borrowings	4,576		588
Accrued expense and other liabilities	4,849		3,548
Long-term debt	18,257		12,042
Total liabilities	176,761		168,923
EQUITY
Preferred stock	2,500		1,900
Common Shares, $1 par value; authorized 2,100,000,000 shares; issued 1,256,702,081 shares	1,257		1,257
Capital surplus	6,257		6,278
Retained earnings	15,450		14,553
Treasury stock, at cost (323,763,632 and 327,852,311 shares)	(5,917)		(5,979)
Accumulated other comprehensive income (loss)	(6,257)		(586)


Total equity	13,290		17,423
Total liabilities and equity	$	190,051	$	186,346

(a)Total loans held for sale include real estate — residential mortgage loans held for sale at fair value of $61 million at September 30, 2022, and $281 million at December 31, 2021.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Income


Dollars in millions, except per share amounts	Three months ended September 30,				Nine months ended September 30,
(Unaudited)	2022		2021		2022		2021
INTEREST INCOME
Loans	$	1,134	$	882	$	2,894	$	2,659
Loans held for sale	14		13		36		35
Securities available for sale	196		135		557		398
Held-to-maturity securities	55		43		149		133
Trading account assets	8		4		21		14
Short-term investments	32		9		49		20
Other investments	5		1		11		5
Total interest income	1,444		1,087		3,717		3,264
INTEREST EXPENSE
Deposits	59		15		93		52
Federal funds purchased and securities sold under repurchase agreements	19		—		25		—
Bank notes and other short-term borrowings	24		2		36		6
Long-term debt	146		54		256		168
Total interest expense	248		71		410		226
NET INTEREST INCOME	1,196		1,016		3,307		3,038
Provision for credit losses	109		(107)		237		(422)
Net interest income after provision for credit losses	1,087		1,123		3,070		3,460
NONINTEREST INCOME
Trust and investment services income	127		129		400		395
Investment banking and debt placement fees	154		235		466		614
Service charges on deposit accounts	92		91		279		247
Operating lease income and other leasing gains	19		37		79		111
Corporate services income	96		74		283		212
Cards and payments income	91		111		256		329
Corporate-owned life insurance income	33		33		99		94
Consumer mortgage income	14		33		49		106
Commercial mortgage servicing fees	44		34		125		112
Other income (a)	13		20		11		65
Total noninterest income	683		797		2,047		2,285
NONINTEREST EXPENSE
Personnel	655		640		1,892		1,887
Net occupancy	72		74		223		225
Computer processing	77		67		232		211
Business services and professional fees	47		56		152		157
Equipment	23		25		72		75
Operating lease expense	24		30		79		95
Marketing	30		32		92		89



Other expense	178		188		512		520
Total noninterest expense	1,106		1,112		3,254		3,259
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	664		808		1,863		2,486
Income taxes	124		165		346		501
INCOME (LOSS) FROM CONTINUING OPERATIONS	540		643		1,517		1,985
Income (loss) from discontinued operations	2		2		6		11
NET INCOME (LOSS)	542		645		1,523		1,996
Less: Net income (loss) attributable to noncontrolling interests	—		—		—		—
NET INCOME (LOSS) ATTRIBUTABLE TO KEY	$	542	$	645	$	1,523	$	1,996
Income (loss) from continuing operations attributable to Key common shareholders	$	513	$	616	$	1,437	$	1,905
Net income (loss) attributable to Key common shareholders	515		618		1,443		1,916
Per Common Share:
Income (loss) from continuing operations attributable to Key common shareholders	$	.55	$	.65	$	1.55	$	1.99
Income (loss) from discontinued operations, net of taxes	—		—		.01		.01
Net income (loss) attributable to Key common shareholders (b)	.55		.66		1.56		2.00
Per Common Share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders	$	.55	$	.65	$	1.54	$	1.98
Income (loss) from discontinued operations, net of taxes	—		—		.01		.01
Net income (loss) attributable to Key common shareholders (b)	.55		.65		1.55		1.99

Weighted-average Common Shares outstanding (000)	924,594		942,446		924,085		955,069

Effect of Common Share options and other stock awards	7,861		10,077		8,679		9,712
Weighted-average Common Shares and potential Common Shares outstanding (000) (c)	932,455		952,523		932,764		964,781

(a)For the three and nine months ended September 30, 2022, we had a $9 million gain in net securities. For the three months ended September 30, 2021, we had a $9 million gain in net securities. For the three and nine months ended September 30, 2022, and September 30, 2021, we did not have any impairment losses related to securities.

(b)EPS may not foot due to rounding.

(c)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Comprehensive Income


Dollars in millions	Three months ended September 30,				Nine months ended September 30,
(Unaudited)	2022		2021		2022		2021
Net income (loss)	$	542	$	645	$	1,523	$	1,996
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale, net of income taxes of $510, $56, $1,381, and $195	(1,616)		(174)		(4,380)		(617)
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $150, $9, $409, and $57	(477)		(29)		(1,298)		(180)

Net pension and postretirement benefit costs, net of income taxes of $0, $(3), $(2), and $(5)	2		8		7		14
Total other comprehensive income (loss), net of tax	(2,091)		(195)		(5,671)		(783)
Comprehensive income (loss)	(1,549)		450		(4,148)		1,213
Less: Comprehensive income attributable to noncontrolling interests	—		—		—		—
Comprehensive income (loss) attributable to Key	$	(1,549)	$	450	$	(4,148)	$	1,213

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Changes in Equity


	Key Shareholders’ Equity
Dollars in millions, except per share amounts (Unaudited)	Preferred Shares Outstanding (000)	Common Shares Outstanding (000)	Preferred Stock		Common Shares		Capital Surplus		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2021	1,396	928,850	$	1,900	$	1,257	$	6,278	$	14,553	$	(5,979)	$	(586)	$	17,423
Net income (loss)									1,523						1,523
Other comprehensive income (loss)													(5,671)		(5,671)
Deferred compensation							(6)								(6)
Cash dividends declared
Common Shares ($.585 per share)									(546)						(546)
Series D Preferred Stock ($37.50 per depositary share)									(19)						(19)
Series E Preferred Stock ($1.148400 per depositary share)									(24)						(24)
Series F Preferred Stock ($1.059400 per depositary share)									(18)						(18)
Series G Preferred Stock ($1.054700 per depositary share)									(19)						(19)
Employee equity compensation program Common Share repurchases		(1,734)									(44)				(44)
Common shares reissued (returned) for stock options and other employee benefit plans		5,822					(5)				106				101
Issuance of Series H preferred stock	600		600				(10)								590


BALANCE AT SEPTEMBER 30, 2022	1,996	932,938	$	2,500	$	1,257	$	6,257	$	15,450	$	(5,917)	$	(6,257)	$	13,290

BALANCE AT JUNE 30, 2022	1,396	932,643	$	1,900	$	1,257	$	6,241	$	15,118	$	(5,923)	$	(4,166)	$	14,427


Net income (loss)									542						542
Other comprehensive income (loss)													(2,091)		(2,091)
Deferred compensation							—								—
Cash dividends declared
Common Shares ($.195 per share)									(182)						(182)
Series D Preferred Stock ($12.50 per depositary share)									(7)						(7)
Series E Preferred Stock ($.382813 per depositary share)									(8)						(8)
Series F Preferred Stock ($.353125 per depositary share)									(6)						(6)
Series G Preferred Stock ($.351563 per depositary share)									(7)						(7)


Employee equity compensation program Common Share repurchases		(3)					—				—				—
Common shares reissued (returned) for stock options and other employee benefit plans		298					26				6				32
Issuance of Series H preferred stock	600		600				(10)								590

BALANCE AT SEPTEMBER 30, 2022	1,996	932,938	$	2,500	$	1,257	$	6,257	$	15,450	$	(5,917)	$	(6,257)	$	13,290


	Key Shareholders’ Equity
Dollars in millions, except per share amounts (Unaudited)	Preferred Shares Outstanding (000)	Common Shares Outstanding (000)	Preferred Stock		Common Shares		Capital Surplus		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2020	1,396	975,773	$	1,900	$	1,257	$	6,281	$	12,751	$	(4,946)	$	738	$	17,981


Net income (loss)									1,996						1,996
Other comprehensive income (loss)													(783)		(783)
Deferred compensation							5								5
Cash dividends declared
Common Shares ($.555 per share)									(534)						(534)
Series D Preferred Stock ($37.50 per depositary share)									(20)						(20)
Series E Preferred Stock ($1.148439 per depositary share)									(23)						(23)
Series F Preferred Stock ($1.059375 per depositary share)									(18)						(18)
Series G Preferred Stock ($1.054689 per depositary share)									(19)						(19)
Open market Common Share repurchases		(27,346)									(559)				(559)
Employee equity compensation program Common Share repurchases		(1,604)					—				(32)				(32)
Common shares reissued (returned) for stock options and other employee benefit plans		7,274					(28)				129				101
Common share repurchases under ASR program		(23,553)					(117)				(468)				(585)



BALANCE AT SEPTEMBER 30, 2021	1,396	930,544	$	1,900	$	1,257	$	6,141	$	14,133	$	(5,876)	$	(45)	$	17,510

BALANCE AT JUNE 30, 2021	1,396	960,276	$	1,900	$	1,257	$	6,232	$	13,689	$	(5,287)	$	150	$	17,941
Net income (loss)									645						645
Other comprehensive income (loss)													(195)		(195)
Deferred compensation							5								5
Cash dividends declared
Common Shares ($.185 per share)									(176)						(176)
Series D Preferred Stock ($12.50 per depositary share)									(6)						(6)
Series E Preferred Stock ($.382813 per depositary share)									(7)						(7)
Series F Preferred Stock ($.353125 per depositary share)									(7)						(7)
Series G Preferred Stock ($.35156 per depositary share)									(5)						(5)

Open market Common Share repurchases		(6,367)									(125)				(125)
Employee equity compensation program Common Share repurchases		(3)					—				—				—
Common shares reissued (returned) for stock options and other employee benefit plans		191					21				4				25

Common share repurchases under ASR program		(23,553)					(117)				(468)				(585)
BALANCE AT SEPTEMBER 30, 2021	1,396	930,544	$	1,900	$	1,257	$	6,141	$	14,133	$	(5,876)	$	(45)	$	17,510

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Cash Flows


Dollars in millions	Nine months ended September 30,
(Unaudited)	2022		2021
OPERATING ACTIVITIES
Net income (loss)	$	1,523	$	1,996
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses	237		(422)
Depreciation and amortization expense, net	100		80
Accretion of acquired loans	22		19
Increase in cash surrender value of corporate-owned life insurance	(83)		(82)
Stock-based compensation expense	89		78
Deferred income taxes (benefit)	38		126
Proceeds from sales of loans held for sale	9,337		11,282
Originations of loans held for sale, net of repayments	(7,597)		(10,818)
Net losses (gains) on sales of loans held for sale	(116)		(192)
Net losses (gains) on leased equipment	6		(9)
Net securities losses (gains)	9		—
Net losses (gains) on sales of fixed assets	(5)		13
Net decrease (increase) in trading account assets	(367)		(167)
Net transfers of loans held for sale	—		26

Other operating activities, net	(309)		(767)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	2,884		1,163
INVESTING ACTIVITIES
Purchases of intangibles assets via acquisitions	(12)		—
Cash received (used) in acquisitions, net of cash acquired	(58)		(9)
Net decrease (increase) in short-term investments, excluding acquisitions	6,114		(3,414)
Purchases of securities available for sale	(4,429)		(19,726)
Proceeds from sales of securities available for sale	—		—
Proceeds from prepayments and maturities of securities available for sale	3,774		5,824
Proceeds from prepayments and maturities of held-to-maturity securities	1,891		2,004
Purchases of held-to-maturity securities	(2,727)		(3)
Purchases of other investments	(620)		(26)
Proceeds from sales of other investments	13		36
Proceeds from prepayments and maturities of other investments	9		8
Net decrease (increase) in loans, excluding acquisitions, sales and transfers	(14,443)		(1,031)
Proceeds from sales of portfolio loans	125		243
Proceeds from corporate-owned life insurance	60		56
Purchases of premises, equipment, and software	(61)		(31)
Proceeds from sales of premises and equipment	13		—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(10,351)		(16,069)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	(7,717)		16,649
Net increase (decrease) in short-term borrowings	8,039		16
Net proceeds from issuance of long-term debt	15,601		1,203
Payments on long-term debt	(8,577)		(1,521)
Issuance of preferred shares	590		—
Open market common share repurchases	—		(559)
Employee equity compensation program Common Share repurchases	(44)		(32)
Common share purchases under ASR program	—		(585)
Net proceeds from reissuance of Common Shares	5		21
Cash dividends paid	(626)		(614)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	7,271		14,578
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS	(196)		(328)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD	913		1,091
CASH AND DUE FROM BANKS AT END OF PERIOD	$	717	$	763
Additional disclosures relative to cash flows:
Interest paid	$	277	$	254
Income taxes paid (refunded)	160		212
Noncash items:
Reduction of secured borrowing and related collateral	$	7	$	7
Loans transferred to portfolio from held for sale	57		86
Loans transferred to held for sale from portfolio	—		3,403
Loans transferred to OREO	5		3
CMBS risk retentions	12		—
ABS risk retentions	9		13
Securities received as consideration	—		2,825

See Notes to Consolidated Financial Statements (Unaudited).

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Accounting Policies

The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Some previously reported amounts related to derivative valuations and reserves have been reclassified from Other Income to Corporate Services Income to conform to current reporting practices.

The consolidated financial statements include any voting rights entities in which we have a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly affect the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., we are considered to be the primary beneficiary). Variable interests can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements, and financial instruments. See Note 11 (“Variable Interest Entities”) for information on our involvement with VIEs.

We use the equity method to account for unconsolidated investments in voting rights entities or VIEs if we have significant influence over the entity’s operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not controlling). Unconsolidated investments in voting rights entities or VIEs in which we have a voting or economic interest of less than 20% are carried at the cost measurement alternative or at fair value. Investments held by our registered broker-dealer and investment company subsidiaries (principal investing entities and Real Estate Capital line of business) are carried at fair value.

The unaudited consolidated interim financial statements reflect all adjustments of a normal recurring nature and disclosures that are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our 2021 Form 10-K.

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users or filed with the SEC.

Accounting Guidance Adopted in 2022


Standard	Date of Adoption	Description	Effect on Financial Statements or Other Significant Matters
Reference Rate Reform (Topic 848)	March 12, 2020 through December 31, 2022	London Interbank Offered Rate (LIBOR), a reference rate presumed to capture bank funding costs, is being phased out and will no longer be published. This transition to alternate rates will impact, among other things, contracts that reference LIBOR. This ASU provides relief from cumbersome accounting consequences for certain qualifying contract modifications undertaken as a result of reference rate reform.	Key has established an enterprise-wide program to identify and address all LIBOR related matters. We have elected to apply certain optional expedients for contract modifications and hedging relationships to derivative instruments impacted by the market-wide discounting transition. These optional expedients remove the requirement to remeasure contract modifications or dedesignate hedging relationships due to reference rate reform. We plan to elect any optional expedients for contract modifications and hedging relationships to any other financial instruments falling under the scope of reference rate reform.
ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)	January 1, 2022	The ASU simplifies the accounting for convertible debt instruments by eliminating the legacy accounting models for convertible instruments with beneficial conversion features or cash conversion features. The guidance also amends the guidance used to determine if a freestanding financial instrument or an embedded feature qualifies for a scope exception from derivative accounting. For freestanding financial instruments and embedded features that have all the characteristics of a derivative instrument and are potentially settled in an entity’s own stock, the guidance simplifies the settlement assessment that entities are required to perform. Also, the Update now requires the use of the if-converted method for all convertible instruments and includes the effect of potential share settlement in diluted EPS if the effect is more dilutive. The new guidance also makes clarifications to the EPS calculation. Further, the ASU expands disclosure requirements. The guidance should be applied on a modified retrospective or retrospective basis.	The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations.

2. Earnings Per Common Share

Basic earnings per share is the amount of earnings (adjusted for dividends declared on our preferred stock) available to each Common Share outstanding during the reporting periods. Diluted earnings per share is the amount of earnings available to each Common Share outstanding during the reporting periods adjusted to include the effects of potentially dilutive Common Shares. Potentially dilutive Common Shares include stock options and other stock-based awards. Potentially dilutive Common Shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive.

Our basic and diluted earnings per Common Share are calculated as follows:


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions, except per share amounts	2022		2021		2022		2021
EARNINGS
Income (loss) from continuing operations	$	540	$	643	$	1,517	$	1,985
Less: Net income (loss) attributable to noncontrolling interests	—		—		—		—
Income (loss) from continuing operations attributable to Key	540		643		1,517		1,985
Less: Dividends on Preferred Stock	27		27		80		80
Income (loss) from continuing operations attributable to Key common shareholders	513		616		1,437		1,905
Income (loss) from discontinued operations, net of taxes	2		2		6		11
Net income (loss) attributable to Key common shareholders	$	515	$	618	$	1,443	$	1,916
WEIGHTED-AVERAGE COMMON SHARES
Weighted-average Common Shares outstanding (000)	924,594		942,446		924,085		955,069
Effect of Common Share options and other stock awards	7,861		10,077		8,679		9,712
Weighted-average Common Shares and potential Common Shares outstanding (000) (a)	932,455		952,523		932,764		964,781
EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.55	$	.65	$	1.55	$	1.99
Income (loss) from discontinued operations, net of taxes	—		—		.01		.01
Net income (loss) attributable to Key common shareholders (b)	.55		.66		1.56		2.00

Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.55	$	.65	$	1.54	$	1.98
Income (loss) from discontinued operations, net of taxes — assuming dilution	—		—		.01		.01
Net income (loss) attributable to Key common shareholders — assuming dilution (b)	.55		.65		1.55		1.99

(a)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.

(b)EPS may not foot due to rounding.

3. Loan Portfolio

Loan Portfolio by Portfolio Segment and Financing Receivable (a)


Dollars in millions	September 30, 2022		December 31, 2021
Commercial and industrial (b)	$	56,971	$	50,525
Commercial real estate:
Commercial mortgage	16,400		14,244
Construction	2,349		1,996
Total commercial real estate loans	18,749		16,240
Commercial lease financing (c)	3,877		4,071
Total commercial loans	79,597		70,836
Residential — prime loans:
Real estate — residential mortgage	20,838		15,756
Home equity loans	7,926		8,467
Total residential — prime loans	28,764		24,223
Consumer direct loans	6,803		5,753
Credit cards	977		972
Consumer indirect loans	50		70
Total consumer loans	36,594		31,018
Total loans (d)	$	116,191	$	101,854

(a)Accrued interest of $274 million and $198 million at September 30, 2022, and December 31, 2021, respectively, presented in "other assets" on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(b)Loan balances include $166 million and $139 million of commercial credit card balances at September 30, 2022, and December 31, 2021, respectively.

(c)Commercial lease financing includes receivables held as collateral for a secured borrowing of $10 million and $16 million at September 30, 2022, and December 31, 2021, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 20 (“Long-Term Debt”) beginning on page 169 of our 2021 Form 10-K.

(d)Total loans exclude loans of $467 million at September 30, 2022, and $567 million at December 31, 2021, related to the discontinued operations of the education lending business.

4. Asset Quality

ALLL

We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 ("Summary of Significant Accounting Policies") under the heading "Allowance for Loan and Lease Losses" beginning on page 109 of our 2021 Form 10-K.

The ALLL at September 30, 2022, represents our current estimate of lifetime credit losses inherent in the loan portfolio at that date. The changes in the ALLL by loan category for the periods indicated are as follows:

Three months ended September 30, 2022:


Dollars in millions	June 30, 2022		Provision			Charge-offs		Recoveries		September 30, 2022
Commercial and Industrial	$	503	$	52		$	(49)	$	13	$	519
Commercial real estate:
Real estate — commercial mortgage	156		13			(3)		2		168
Real estate — construction	21		1			—		—		22
Total commercial real estate loans	177		14			(3)		2		190
Commercial lease financing	29		—			—		1		30
Total commercial loans	709		66			(52)		16		739
Real estate — residential mortgage	122		15			(1)		1		137
Home equity loans	95		(3)			—		1		93
Consumer direct loans	112		4			(8)		4		112
Credit cards	59		7			(7)		2		61
Consumer indirect loans	2		(1)			—		1		2
Total consumer loans	390		22			(16)		9		405
Total ALLL — continuing operations	1,099		88		(a)	(68)		25		1,144
Discontinued operations	24		(2)			(1)		1		22
Total ALLL — including discontinued operations	$	1,123	$	86		$	(69)	$	26	$	1,166

(a)Excludes a provision for losses on lending-related commitments of $21 million.

Three months ended September 30, 2021:


Dollars in millions	June 30, 2021		Provision			Charge-offs		Recoveries		September 30, 2021
Commercial and Industrial	$	499	$	(30)		$	(27)	$	20	$	462
Commercial real estate:
Real estate — commercial mortgage	227		(44)			—		1		184
Real estate — construction	35		(8)			—		—		27
Total commercial real estate loans	262		(52)			—		1		211
Commercial lease financing	34		(7)			(1)		6		32
Total commercial loans	795		(89)			(28)		27		705
Real estate — residential mortgage	86		(1)			2		1		88
Home equity loans	136		(13)			(1)		2		124
Consumer direct loans	115		(5)			(7)		2		105
Credit cards	68		(4)			(6)		1		59
Consumer indirect loans	20		5			(26)		4		3
Total consumer loans	425		(18)			(38)		10		379
Total ALLL — continuing operations	1,220		(107)		(a)	(66)		37		1,084
Discontinued operations	30		(1)			(1)		1		29
Total ALLL — including discontinued operations	$	1,250	$	(108)		$	(67)	$	38	$	1,113

(a)We had no losses on lending-related commitments.

Nine months ended September 30, 2022:


Dollars in millions	December 31, 2021		Provision			Charge-offs		Recoveries		September 30, 2022
Commercial and Industrial	$	445	$	160		$	(118)	$	32	$	519
Commercial real estate:
Real estate — commercial mortgage	182		(8)			(10)		4		168
Real estate — construction	29		(8)			—		1		22
Total commercial real estate loans	211		(16)			(10)		5		190
Commercial lease financing	32		(2)			(2)		2		30
Total commercial loans	688		142			(130)		39		739
Real estate — residential mortgage	95		38			2		2		137
Home equity loans	110		(19)			(1)		3		93
Consumer direct loans	105		25			(25)		7		112
Credit cards	61		17			(22)		5		61
Consumer indirect loans	2		—			(2)		2		2
Total consumer loans	373		61			(48)		19		405
Total ALLL — continuing operations	1,061		203		(a)	(178)		58		1,144
Discontinued operations	28		(4)			(4)		2		22
Total ALLL — including discontinued operations	$	1,089	$	199		$	(182)	$	60	$	1,166

(a)Excludes a provision for losses on lending-related commitments of $34 million.

Nine months ended September 30, 2021:


Dollars in millions	December 31, 2020		Provision			Charge-offs		Recoveries		September 30, 2021
Commercial and Industrial	$	678	$	(135)		$	(141)	$	60	$	462
Commercial real estate:
Real estate — commercial mortgage	327		(112)			(39)		8		184
Real estate — construction	47		(20)			—		—		27
Total commercial real estate loans	374		(132)			(39)		8		211
Commercial lease financing	47		(17)			(5)		7		32
Total commercial loans	1,099		(284)			(185)		75		705
Real estate — residential mortgage	102		(17)			1		2		88
Home equity loans	171		(44)			(7)		4		124
Consumer direct loans	128		(7)			(22)		6		105
Credit cards	87		(13)			(21)		6		59
Consumer indirect loans	39		(12)			(38)		14		3
Total consumer loans	527		(93)			(87)		32		379
Total ALLL — continuing operations	1,626		(377)		(a)	(272)		107		1,084
Discontinued operations	36		(6)			(3)		2		29
Total ALLL — including discontinued operations	$	1,662	$	(383)		$	(275)	$	109	$	1,113

(a)Excludes a provision for losses on lending-related commitments of $45 million.

As described in Note 1 ("Summary of Significant Accounting Policies"), under the heading “Allowance for Loan and Lease Losses” beginning on page 109 of our 2021 Form 10-K, we estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current economic and portfolio conditions, and reasonable and supportable forecasts. In our estimation of expected credit losses, we use a two year reasonable and supportable period across all products. Following this two year period in which supportable forecasts can be generated, for all modeled loan portfolios, we revert expected credit losses to a level that is consistent with our historical information by reverting the macroeconomic variables (model inputs) to their long run average. We revert to historical loss rates for less complex estimation methods for smaller portfolios. A 20 year fixed length look back period is used to calculate the long run average of the macroeconomic variables. A four quarter reversion period is used where the macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period.

We develop our reasonable and supportable forecasts using relevant data including, but not limited to, changes in economic output, unemployment rates, property values, and other factors associated with the credit losses on financial assets. Some macroeconomic variables apply to all portfolio segments, while others are more portfolio specific. The following table discloses key macroeconomic variables for each loan portfolio.


Segment	Portfolio	Key Macroeconomic Variables (a)
Commercial	Commercial and industrial	BBB corporate bond rate (spread), fixed investment, business bankruptcies, GDP, industrial production, and unemployment rate
Commercial real estate	Property & real estate price indices, unemployment rate, business bankruptcies, GDP
Commercial lease financing	BBB corporate bond rate (spread), GDP, and unemployment rate
Consumer	Real estate — residential mortgage	GDP, home price index, unemployment rate, and 30 year mortgage rate
Home equity	Home price index, unemployment rate, and 30 year mortgage rate
Consumer direct	Unemployment rate and U.S. household income
Consumer indirect	New vehicle sales, used vehicle prices, and Unemployment rate
Credit cards	Unemployment rate and U.S. household income
Discontinued operations	Unemployment rate

(a)Variables include all transformations and interactions with other risk drivers. Additionally, variables may have varying impacts at different points in the economic cycle.

In addition to macroeconomic drivers, portfolio attributes such as remaining term, outstanding balance, risk ratings, utilization, FICO, LTV, and delinquency also drive ALLL changes. Our ALLL models were designed to capture the correlation between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes and macroeconomic variables in isolation may not be indicative of past or future performance.

Economic Outlook

As of September 30, 2022, risk of slowing economic growth is elevated due to the heightened inflationary pressures and continued stress on global supply chains. While inflation in the United States has persisted at elevated levels, monetary policy has become more restrictive which is expected to reduce inflation into 2023. While unemployment rates are still expected to remain at relatively low levels, job growth is moderating. We utilized the Moody’s August 2022 Consensus forecast as our baseline forecast to estimate our expected credit losses as of September 30, 2022. We determined such forecast to be a reasonable view of the outlook for the economy given all available information at quarter end.

The baseline scenario reflects slow economic growth over the next two years in markets in which we operate. U.S. GDP continues to grow, albeit at a slow pace, at a 1.7% annualized rate in the third quarter of 2022 and at an annual rate of approximately 2% and 1% for 2022 and 2023, respectively. The national unemployment rate forecast is 3.5% in the third quarter of 2022, and is expected to increase slightly through the fourth quarter of 2023 due to labor supply constraints. The U.S. Consumer Price Index (CPI) annualized rate is expected to return to below 3% by the first quarter of 2023.

As a result of the current economic uncertainty, our future loss estimates may vary considerably from our September 30, 2022, assumptions.

Commercial Loan Portfolio

The ALLL from continuing operations for the commercial segment increased by $30 million, or 4.2%, from June 30, 2022. The overall increase in the commercial allowance is driven by loan growth and changes in economic outlook.

Changes to the economic forecast include increases in unemployment, lower final sales of domestic product and decreased consumer confidence measures, largely related to observed high inflation and increased interest rates. Loan growth particularly within the commercial and industrial portfolio remains strong and contributes to reserve build. These increases are partly offset by reductions in the qualitative reserves due to easing of pandemic-related risks as well as lower reserves attributable to a model recalibration and to individually assessed reserves.

Consumer Loan Portfolio

The ALLL from continuing operations for the consumer segment increased by $15 million, or 3.8%, from June 30, 2022. The overall increase in the allowance is primarily driven by loan growth and economic forecast changes, partly offset by reductions in qualitative reserves as pandemic-related pressures ease.

Current reserve levels reflect the overall declining economic outlook quarter-over-quarter, with the most meaningful economic changes being the slowing home price growth and shifts in the unemployment outlook. As it relates to the changes in the ALLL due to portfolio factors, increases are largely driven by targeted growth in the residential mortgage portfolio.

Credit Risk Profile

The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the refreshed FICO score assigned for the consumer loan portfolios. The internal risk grades assigned to loans follow our definitions of Pass and Criticized, which are consistent with published definitions of regulatory risk classifications. Loans with a pass rating represent those loans not classified on our rating scale for credits, as minimal credit risk has been identified. Criticized loans are those loans that either have a potential weakness deserving management's close attention or have a well-defined weakness that may put full collection of contractual cash flows at risk. Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay its debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the tables below at the dates indicated.

All extensions of credit are subject to loan grading or scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category and Vintage (a)


As of September 30, 2022	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and Internal Risk Rating
Dollars in millions	2022		2021		2020		2019		2018		Prior		Total
Commercial and Industrial
Risk Rating:
Pass	$	7,572	$	9,757	$	3,729	$	3,267	$	1,862	$	3,831	$	24,796	$	132	$	54,946
Criticized (Accruing)	11		179		130		114		278		251		865		28		1,856
Criticized (Nonaccruing)	39		2		7		6		8		25		80		2		169
Total commercial and industrial	7,622		9,938		3,866		3,387		2,148		4,107		25,741		162		56,971
Real estate — commercial mortgage
Risk Rating:
Pass	4,162		4,264		1,014		1,912		827		2,695		927		50		15,851
Criticized (Accruing)	—		24		26		85		91		242		46		1		515
Criticized (Nonaccruing)	—		—		1		2		2		25		4		—		34
Total real estate — commercial mortgage	4,162		4,288		1,041		1,999		920		2,962		977		51		16,400
Real estate — construction
Risk Rating:
Pass	475		747		516		365		168		49		1		—		2,321
Criticized (Accruing)	—		—		5		5		14		4		—		—		28
Criticized (Nonaccruing)	—		—		—		—		—		—		—		—		—
Total real estate — construction	475		747		521		370		182		53		1		—		2,349
Commercial lease financing
Risk Rating:
Pass	697		869		558		506		199		991		—		—		3,820
Criticized (Accruing)	1		1		10		19		13		11		—		—		55
Criticized (Nonaccruing)	—		—		—		1		1		—		—		—		2
Total commercial lease financing	698		870		568		526		213		1,002				—		3,877
Total commercial loans	$	12,957	$	15,843	$	5,996	$	6,282	$	3,463	$	8,124	$	26,719	$	213	$	79,597


As of December 31, 2021	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and Internal Risk Rating
Dollars in millions	2021		2020		2019		2018		2017		Prior		Total
Commercial and Industrial
Risk Rating:
Pass	$	11,675	$	4,941	$	4,040	$	2,771	$	1,777	$	3,108	$	20,406	$	72	$	48,790
Criticized (Accruing)	64		71		115		175		200		121		784		14		1,544
Criticized (Nonaccruing)	1		1		21		10		19		15		122		2		191
Total commercial and industrial	11,740		5,013		4,176		2,956		1,996		3,244		21,312		88		50,525
Real estate — commercial mortgage
Risk Rating:
Pass	4,923		1,197		2,137		1,168		612		2,787		803		53		13,680
Criticized (Accruing)	15		22		70		62		109		206		35		1		520
Criticized (Nonaccruing)	—		1		1		5		—		31		6		—		44
Total real estate — commercial mortgage	4,938		1,220		2,208		1,235		721		3,024		844		54		14,244
Real estate — construction
Risk Rating:
Pass	495		565		530		223		92		32		2		—		1,939
Criticized (Accruing)	—		4		5		43		4		—		1		—		57
Criticized (Nonaccruing)	—		—		—		—		—		—		—		—		—
Total real estate — construction	495		569		535		266		96		32		3		—		1,996
Commercial lease financing
Risk Rating:
Pass	1,039		748		675		301		309		927		—		—		3,999
Criticized (Accruing)	—		6		29		13		13		7		—		—		68
Criticized (Nonaccruing)	—		—		1		1		1		1		—		—		4
Total commercial lease financing	1,039		754		705		315		323		935		—		—		4,071
Total commercial loans	$	18,212	$	7,556	$	7,624	$	4,772	$	3,136	$	7,235	$	22,159	$	142	$	70,836

**(a)**Accrued interest of $197 million and $113 million as of September 30, 2022, and December 31, 2021, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in these tables.

Consumer Credit Exposure

Credit Risk Profile by FICO Score and Vintage (a)


As of September 30, 2022	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and FICO Score
Dollars in millions	2022		2021		2020		2019		2018		Prior		Total
Real estate — residential mortgage
FICO Score:
750 and above	$	4,959	$	8,248	$	2,624	$	643	$	63	$	1,015	$	—	$	—	$	17,552
660 to 749	1,256		979		299		115		32		261		—		—		2,942
Less than 660	35		38		18		15		15		139		—		—		260
No Score	51		1		1		1		1		28		1		—		84
Total real estate — residential mortgage	6,301		9,266		2,942		774		111		1,443		1		—		20,838
Home equity loans
FICO Score:
750 and above	138		879		760		214		76		647		2,303		403		5,420
660 to 749	85		302		204		83		33		196		961		129		1,993
Less than 660	9		31		22		17		10		84		294		38		505
No Score	4		—		—		—		—		2		2		—		8
Total home equity loans	236		1,212		986		314		119		929		3,560		570		7,926
Consumer direct loans
FICO Score:
750 and above	1,229		1,876		860		378		50		106		104		—		4,603
660 to 749	474		461		242		129		29		44		204		—		1,583
Less than 660	44		62		31		23		7		10		55		—		232
No Score	59		39		23		18		12		24		210		—		385
Total consumer direct loans	1,806		2,438		1,156		548		98		184		573		—		6,803
Credit cards
FICO Score:
750 and above	—		—		—		—		—		—		493		—		493
660 to 749	—		—		—		—		—		—		391		—		391
Less than 660	—		—		—		—		—		—		92		—		92
No Score	—		—		—		—		—		—		1		—		1
Total credit cards	—		—		—		—		—		—		977		—		977
Consumer indirect loans
FICO Score:
750 and above	—		2		—		—		—		24		—		—		26
660 to 749	—		—		—		—		—		17		—		—		17
Less than 660	—		—		—		—		—		7		—		—		7
No Score	—		—		—		—		—		—		—		—		—
Total consumer indirect loans	—		2		—		—		—		48		—		—		50
Total consumer loans	$	8,343	$	12,918	$	5,084	$	1,636	$	328	$	2,604	$	5,111	$	570	$	36,594


As of December 31, 2021	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and FICO Score
Dollars in millions	2021		2020		2019		2018		2017		Prior		Total
Real estate — residential mortgage
FICO Score:
750 and above	$	7,906	$	2,909	$	777	$	84	$	126	$	1,096	$	—	$	—	$	12,898
660 to 749	1,686		351		169		39		25		308		—		—		2,578
Less than 660	26		14		19		16		9		142		—		—		226
No Score	18		—		1		1		3		30		1		—		54
Total real estate — residential mortgage	9,636		3,274		966		140		163		1,576		1		—		15,756
Home equity loans
FICO Score:
750 and above	1,051		830		251		96		128		666		2,244		423		5,689
660 to 749	394		263		111		44		40		204		1,004		143		2,203
Less than 660	27		24		20		13		13		92		333		46		568
No Score	—		2		—		—		—		2		3		—		7
Total home equity loans	1,472		1,119		382		153		181		964		3,584		612		8,467
Consumer direct loans
FICO Score:
750 and above	1,799		1,129		517		65		17		129		109		—		3,765
660 to 749	612		295		174		46		10		45		212		—		1,394
Less than 660	45		33		27		11		3		12		60		—		191
No Score	68		40		29		17		10		21		218		—		403
Total consumer direct loans	2,524		1,497		747		139		40		207		599		—		5,753
Credit cards
FICO Score:
750 and above	—		—		—		—		—		—		500		—		500
660 to 749	—		—		—		—		—		—		387		—		387
Less than 660	—		—		—		—		—		—		84		—		84
No Score	—		—		—		—		—		—		1		—		1
Total credit cards	—		—		—		—		—		—		972		—		972
Consumer indirect loans
FICO Score:
750 and above	5		—		—		—		—		30		—		—		35
660 to 749	—		—		—		—		—		26		—		—		26
Less than 660	—		—		—		—		—		9		—		—		9
No Score	—		—		—		—		—		—		—		—		—
Total consumer indirect loans	5		—		—		—		—		65		—		—		70
Total consumer loans	$	13,637	$	5,890	$	2,095	$	432	$	384	$	2,812	$	5,156	$	612	$	31,018

**(a)**Accrued interest of $77 million and $85 million as of September 30, 2022 and December 31, 2021, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in this table.

Nonperforming and Past Due Loans

Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans” beginning on page 108 of our 2021 Form 10-K.

The following aging analysis of past due and current loans as of September 30, 2022, and December 31, 2021, provides further information regarding Key’s credit exposure.

Aging Analysis of Loan Portfolio(a)


September 30, 2022	Current		30-59 Days Past Due (b)		60-89 Days Past Due (b)		90 and Greater Days Past Due (b)		Non-performing Loans		Total Past Due and Non-performing Loans		Total Loans (c)
Dollars in millions
LOAN TYPE
Commercial and industrial	$	56,674	$	75	$	31	$	22	$	169	$	297	$	56,971
Commercial real estate:
Commercial mortgage	16,353		4		1		8		34		47		16,400
Construction	2,348		—		—		1		—		1		2,349
Total commercial real estate loans	18,701		4		1		9		34		48		18,749
Commercial lease financing	3,857		16		1		1		2		20		3,877
Total commercial loans	$	79,232	$	95	$	33	$	32	$	205	$	365	$	79,597
Real estate — residential mortgage	$	20,759	$	9	$	3	$	1	$	66	$	79	$	20,838
Home equity loans	7,787		19		4		4		112		139		7,926
Consumer direct loans	6,779		11		6		4		3		24		6,803
Credit cards	961		4		3		6		3		16		977
Consumer indirect loans	49		—		—		—		1		1		50
Total consumer loans	$	36,335	$	43	$	16	$	15	$	185	$	259	$	36,594
Total loans	$	115,567	$	138	$	49	$	47	$	390	$	624	$	116,191

(a)Amounts in table represent amortized cost and exclude loans held for sale.

(b)Accrued interest of $274 million presented in Other Assets on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.


December 31, 2021	Current		30-59 Days Past Due (b)		60-89 Days Past Due (b)		90 and Greater Days Past Due (b)		Non-performing Loans		Total Past Due and Non-performing Loans		Total Loans (c)
Dollars in millions
LOAN TYPE
Commercial and industrial	$	50,226	$	19	$	49	$	40	$	191	$	299	$	50,525
Commercial real estate:
Commercial mortgage	14,174		10		9		7		44		70		14,244
Construction	1,978		—		17		1		—		18		1,996
Total commercial real estate loans	16,152		10		26		8		44		88		16,240
Commercial lease financing	4,061		6		—		—		4		10		4,071
Total commercial loans	$	70,439	$	35	$	75	$	48	$	239	$	397	$	70,836
Real estate — residential mortgage	$	15,669	$	7	$	3	$	5	$	72	$	87	$	15,756
Home equity loans	8,299		21		6		6		135		168		8,467
Consumer direct loans	5,736		8		2		3		4		17		5,753
Credit cards	956		4		3		6		3		16		972
Consumer indirect loans	68		1		—		—		1		2		70
Total consumer loans	$	30,728	$	41	$	14	$	20	$	215	$	290	$	31,018
Total loans	$	101,167	$	76	$	89	$	68	$	454	$	687	$	101,854

(a)Amounts in table represent amortized cost and exclude loans held for sale.

(b)Accrued interest of $198 million presented in Other Assets on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.

At September 30, 2022, the approximate carrying amount of our commercial nonperforming loans outstanding represented 60% of their original contractual amount owed, total nonperforming loans outstanding represented 72% of their original contractual amount owed, and nonperforming assets in total were carried at 80% of their original contractual amount owed.

Nonperforming loans reduced expected interest income by $4 million and $13 million for the three and nine months ended September 30, 2022, respectively, and $6 million and $20 million for the three and nine months ended September 30, 2021, respectively.

The amortized cost basis of nonperforming loans on nonaccrual status for which there is no related allowance for credit losses was $220 million at September 30, 2022.

Collateral-dependent Financial Assets

We classify financial assets as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of the collateral. Our commercial loans have collateral that includes cash, accounts receivable, inventory, commercial machinery, commercial properties, commercial real estate construction projects, enterprise value, and stock or ownership interests in the borrowing entity. When appropriate we also consider the enterprise value of the borrower as a repayment source for collateral-dependent loans. Our consumer loans have collateral that includes residential real estate, automobiles, boats, and RVs.

There were no significant changes in the extent to which collateral secures our collateral-dependent financial assets during the three months ended September 30, 2022.

TDRs

We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs.

Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs were $10 million and $15 million at September 30, 2022, and December 31, 2021, respectively.

The consumer TDR other concession category in the table below primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed. At September 30, 2022, and December 31, 2021, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $108 million and $104 million, respectively.

The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs that occurred during the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in millions	2022		2021		2022		2021
Commercial loans:


Extension of Maturity Date	$	40	$	—	$	40	$	5
Payment or Covenant Modification/Deferment	—		—		1		7
Bankruptcy Plan Modification	—		—		—		—
Increase in new commitment or new money	—		—		—		—
Total	$	40	$	—	$	41	$	12
Consumer loans:
Interest rate reduction	$	5	$	3	$	10	$	6

Other	4		12		17		18
Total	$	9	$	15	$	27	$	24
Total TDRs	$	49	$	15	$	68	$	36

The following table summarizes the change in the post-modification outstanding recorded investment of our accruing and nonaccruing TDRs during the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
Dollars in millions	2022		2021		2022		2021
Balance at beginning of the period	$	216	$	334	$	220	$	363
Additions	48		17		70		98
Payments	(10)		(81)		(34)		(162)
Charge-offs	—		—		(2)		(29)
Balance at end of period	$	254	$	270	$	254	$	270

A further breakdown of TDRs included in nonperforming loans by loan category for the periods indicated are as follows:


	September 30, 2022					December 31, 2021
	Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Loans	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Dollars in millions
LOAN TYPE
Nonperforming:
Commercial and industrial	37	$	64	$	52	36	$	30	$	14
Commercial real estate:
Commercial mortgage	4	50		23		3	50		25
Total commercial real estate loans	4	50		23		3	50		25
Total commercial loans	41	114		75		39	80		39
Real estate — residential mortgage	234	29		26		220	26		24
Home equity loans	478	32		28		531	36		31
Consumer direct loans	180	2		2		207	3		2
Credit cards	343	2		2		360	2		2
Consumer indirect loans	17	2		1		23	1		1
Total consumer loans	1,252	67		59		1,341	68		60
Total nonperforming TDRs	1,293	181		134		1,380	148		99
Prior-year accruing:(a)
Commercial and industrial	17	1		—		11	—		—
Commercial real estate
Commercial mortgage	—	—		—		1	—		—
Total commercial real estate loans	—	—		—		1	—		—
Total commercial loans	17	1		—		12	—		—
Real estate — residential mortgage	443	41		35		455	39		33
Home equity loans	1,563	97		74		1,628	97		75
Consumer direct loans	257	4		3		236	5		3
Credit cards	595	4		2		579	4		2
Consumer indirect loans	107	12		6		139	15		8
Total consumer loans	2,965	158		120		3,037	160		121
Total prior-year accruing TDRs	2,982	159		120		3,049	160		121
Total TDRs	4,275	$	340	$	254	4,429	$	308	$	220

(a)All TDRs that were restructured prior to January 1, 2022, and January 1, 2021, are fully accruing.

Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During the three months ended September 30, 2022, there were two commercial loan TDRs and 56 consumer loan TDRs with a combined recorded investment of $1 million that experienced payment defaults after modifications resulting in TDR status during 2021. During the three months ended September 30, 2021, there were two commercial loan TDRs and 33 consumer loan TDRs with a combined recorded investment of $2 million that experienced payment defaults after modifications resulting in TDR status during 2020.

During the nine months ended September 30, 2022, there were seven commercial loan TDRs and 146 consumer loan TDRs with a combined recorded investment of $11 million that experienced payment defaults after modifications resulting in TDR status during 2021. During the nine months ended September 30, 2021, there were five commercial loan TDRs and 98 consumer loan TDRs with a combined recorded investment of $4 million that experienced payment defaults after modifications resulting in TDR status during 2020.

Liability for Credit Losses on Off Balance Sheet Exposures

The liability for credit losses inherent in unfunded lending-related commitments, such as letters of credit and unfunded loan commitments, and certain financial guarantees is included in “accrued expense and other liabilities” on the balance sheet.

Changes in the liability for credit losses on off balance sheet exposures are summarized as follows:


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions	2022		2021		2022		2021



Balance at beginning of period	$	173	$	152	160		197
Provision (credit) for losses on off balance sheet exposures	21		—		34		(45)
Balance at end of period	$	194	$	152	$	194	$	152

5. Fair Value Measurements

In accordance with GAAP, Key measures certain assets and liabilities at fair value. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in our principal market. Additional information regarding our accounting policies for determining fair value is provided in Note 6 (“Fair Value Measurements”) and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” of our 2021 Form 10-K.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in accordance with GAAP. For more information on the valuation techniques used to measure classes of assets and liabilities reported at fair value on a recurring basis as well as the classification of each in the valuation hierarchy, refer to Note 6 (“Fair Value Measurements” in our 2021 Form 10-K. The following tables present these assets and liabilities at September 30, 2022, and December 31, 2021.


	September 30, 2022								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Dollars in millions
ASSETS MEASURED ON A RECURRING BASIS



Trading account assets:
U.S. Treasury, agencies and corporations	$	—	$	847	$	—	$	847	$	—	$	530	$	—	$	530
States and political subdivisions	—		68		—		68		—		96		—		96

Other mortgage-backed securities	—		133		—		133		—		44		—		44
Other securities	2		12		—		14		—		13		—		13
Total trading account securities	2		1,060		—		1,062		—		683		—		683
Commercial loans	—		6		—		6		—		18		—		18
Total trading account assets	2		1,066		—		1,068		—		701		—		701
Securities available for sale:
U.S. Treasury, agencies and corporations	—		9,386		—		9,386		—		9,472		—		9,472
States and political subdivisions	—		—		—		—		—		—		—		—
Agency residential collateralized mortgage obligations	—		17,237		—		17,237		—		21,119		—		21,119
Agency residential mortgage-backed securities	—		3,985		—		3,985		—		5,122		—		5,122
Agency commercial mortgage-backed securities	—		9,391		—		9,391		—		9,651		—		9,651
Other securities	—		1		—		1		—		—		—		—
Total securities available for sale	$	—	$	40,000	$	—	$	40,000	$	—	$	45,364	$	—	$	45,364
Other investments:
Principal investments:
Direct	$	—	$	—	$	1	$	1	$	—	$	—	$	1	$	1
Indirect (measured at NAV) (a)	—		—		—		36		—		—		—		45
Total principal investments	—		—		1		37		—		—		1		46
Equity investments:
Direct	3		—		2		5		24		—		9		33
Direct (measured at NAV) (a)	—		—		—		29		—		—		—		21
Indirect (measured at NAV) (a)	—		—		—		4		—		—		—		5
Total equity investments	3		—		2		38		24		—		9		59
Total other investments	3		—		3		75		24		—		10		105
Loans, net of unearned income (residential)	—		—		9		9		—		—		11		11
Loans held for sale (residential)	—		61		—		61		—		281		—		281
Derivative assets:
Interest rate	—		227		(8)		219		—		774		33		807
Foreign exchange	180		45		—		225		$	71	10		—		81
Commodity	—		1,857		—		1,857		—		1,330		—		1,330
Credit	—		—		—		—		—		—		1		1
Other	—		20		—		20		—		22		5		27
Derivative assets	180		2,148		(8)		2,321		71		2,136		39		2,246
Netting adjustments (b)	—		—		—		(720)		—		—		—		(284)
Total derivative assets	180		2,148		(8)		1,601		71		2,136		39		1,962

Total assets on a recurring basis at fair value	$	185	$	43,275	$	4	$	42,814	$	95	$	48,482	$	60	$	48,424
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	143	$	683	$	—	$	826	$	75	$	513	$	—	$	588
Derivative liabilities:
Interest rate	—		1,429		—		1,429		—		253		—		253
Foreign exchange	172		45		—		217		66		10		—		76
Commodity	—		1,838		—		1,838		—		1,335		—		1,335
Credit	—		—		4		4		—		5		7		12
Other	—		34		3		37		—		11		—		11
Derivative liabilities	172		3,346		7		3,525		66		1,614		7		1,687
Netting adjustments (b)	—		—		—		(1,925)		—		—		—		(1,526)
Total derivative liabilities	172		3,346		7		1,600		66		1,614		7		161

Total liabilities on a recurring basis at fair value	$	315	$	4,029	$	7	$	2,426	$	141	$	2,127	$	7	$	749

(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(b)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.

The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at September 30, 2022, as well as financial support provided for the three and nine months ended September 30, 2022, and September 30, 2021.


					Financial support provided
					Three months ended September 30,								Nine months ended September 30,
	September 30, 2022				2022				2021				2022				2021
Dollars in millions	Fair Value		Unfunded Commit-ments		Funded Commit-ments		Funded Other		Funded Commit-ments		Funded Other		Funded Commit-ments		Funded Other		Funded Commit-ments		Funded Other
INVESTMENT TYPE
Direct investments	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Indirect investments (measured at NAV) (a)	36		10		—		—		—		—		—		—		4		—
Total	$	37	$	10	$	—	$	—	$	—	$	—	$	—	$	—	$	4	$	—

(a) Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At September 30, 2022, no significant liquidation of the underlying investments has been communicated to Key. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Changes in Level 3 Fair Value Measurements

The following table shows the components of the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the three and nine months ended September 30, 2022, and September 30, 2021.


Dollars in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements		Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2022




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—

Equity investments
Direct (a)	9		—		(3)			—		(4)		—		—		—			—			2		(3)

Loans, net of unearned income (residential)	11		—		(2)			—		(1)		—		1		—			—			9		—
Derivative instruments (b)
Interest rate	33		—		(71)		(c)	1		(2)		—		—		35		(d)	(4)		(d)	(8)		—
Credit	(6)		—		2		(c)	—		—		—		—		—			—			(4)		—
Other (e)	5		—		—		(c)	—		—		—		(8)		—			—			(3)		—
Three months ended September 30, 2022




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—
Other indirect	—		—		—			—		—		—		—		—			—			—		—
Equity investments
Direct (a)	6		—		—			—		(4)		—		—		—			—			2		—
Loans held for sale (residential)	—		—		—			—		—		—		—		—			—			—		—
Loans, net of unearned income (residential)	11		—		(1)			—		(1)		—		—		—			—			9		—
Derivative instruments (b)
Interest rate	(3)		—		(16)		(c)	(3)		—		—		—		5		(d)	9		(d)	(8)		—
Credit	(3)		—		—		(c)	—		—		—		(1)		—			—			(4)		—
Other (e)	1		—		1		(c)	—		—		—		(5)		—			—			(3)		—


Dollars in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements		Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2021


Securities available for sale
Other securities	$	13	$	9	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	22	$	—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—		—		—			—			1		—
Equity investments
Direct (a)	13		—		(1)			—		—		—		—		—			(3)			9		(1)
Loans held for sale (residential)	—		—		—			—		(1)		—		1		—			—			—		—
Loans, net of unearned income (residential)	11		—		—			—		(2)		—		1		—			—			10		—
Derivative instruments (b)
Interest rate	56		—		(20)		(c)	1		(7)		—		—		21		(d)	(17)		(d)	34		—
Credit	(10)		—		4		(c)	—				—		—		—						(6)		—
Other (e)	32		—		(3)		(c)	—		—		—		(23)		—			—			6		—
Three months ended September 30, 2021


Securities available for sale
Other securities	$	22	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	22	$	—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—		—		—			—			1		—
Equity investments
Direct (a)	9				—																	9		—
Loans held for sale (residential)	—		—		—			—		$	—	—		$	—	—			—			—		—
Loans, net of unearned income (residential)	11		—		—			—		—		—		—		—			—			10		—
Derivative instruments (b)
Interest rate	35		—		(5)		(c)	$	1	(1)						9		(d)	(5)		(d)	34
Credit	(5)		—		—		(c)	(1)		—		—		—		—			—			(6)		—
Other (e)	13		—		—		(c)	—				—		(7)		—			—			6		—

(a)Realized and unrealized gains and losses on principal investments and other equity investments are reported in “other income” on the income statement.

(b)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.

(c)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.

(d)Certain instruments previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.

(e)Amounts represent Level 3 interest rate lock commitments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP. The adjustments to fair value generally result from the application of accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. For more information on the valuation techniques used to measure classes of assets and liabilities measured at fair value on a nonrecurring basis, refer to Note 6 (“Fair Value Measurements”) in our 2021 Form 10-K. There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2022, and December 31, 2021.

The following table presents our assets measured at fair value on a nonrecurring basis at September 30, 2022, and December 31, 2021:


	September 30, 2022								December 31, 2021
Dollars in millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans	$	—	$	—	$	69	$	69	$	—	$	—	$	28	$	28
Loans held for sale	—		—		—		—		—		—		—		—

Accrued income and other assets	—		—		17		17		—		—		80		80
Total assets on a nonrecurring basis at fair value	$	—	$	—	$	86	$	86	$	—	$	—	$	108	$	108

We have other investments in equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share. We have elected to measure these securities at cost less impairment plus or minus adjustments due to observable orderly transactions. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. At each reporting period, we assess if these investments continue to qualify for this measurement alternative. At September 30, 2022, and December 31, 2021, the carrying amount of equity investments under this method was $214 million and $173 million, respectively. One million in impairment was recorded for the three months ended September 30, 2022.

Quantitative Information about Level 3 Fair Value Measurements

The range and weighted-average of the significant unobservable inputs used to fair value our material Level 3

recurring and nonrecurring assets at September 30, 2022, and December 31, 2021, along with the valuation

techniques used, are shown in the following table:


	Level 3 Asset (Liability)				Valuation Technique	Significant Unobservable Input	Range (Weighted-Average) (a), (b)
Dollars in millions	September 30, 2022		December 31, 2021		September 30, 2022	December 31, 2021
Recurring















Loans, net of unearned income (residential)	$	9	$	11	Market comparable pricing	Comparability factor	53.47 - 85.89% (80.88%)	64.50-97.30% (94.24%)
Derivative instruments:
Interest rate	(8)		33		Discounted cash flows	Probability of default	.02 - 100% (14.90%)	.02 - 100% (8.88%)

						Loss given default	0 - 1 (.499)	0 - 1 (.500)







Insignificant level 3 assets, net of liabilities(c)	(4)		9
Nonrecurring
Collateral-dependent loans	69		28		Fair value of collateral	Discount rate	0 - 85.00% (26.00%)	0 - 10.00% (8.00%)


Accrued income and other assets:

OREO and other Level 3 assets (d)	17		13		Appraised value	Appraised value	N/M	N/M

(a)The weighted average of significant unobservable inputs is calculated using a weighting relative to fair value.

(b)For significant unobservable inputs with no range, a single figure is reported to denote the single quantitative factor used.

(c)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain equity investments and certain financial derivative assets and liabilities.

(d)Excludes $67 million pertaining to servicing assets at December 31, 2021. No servicing assets required nonrecurring valuation adjustments at September 30, 2022. Refer to Note 8 (“Mortgage Servicing Assets”) for significant unobservable inputs pertaining to these assets.

Fair Value Disclosures of Financial Instruments

The Levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at September 30, 2022, and December 31, 2021, are shown in the following tables. Assets and liabilities are further arranged by measurement category.


	September 30, 2022
			Fair Value
Dollars in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	1,068	$	2	$	1,066	$	—	$	—	$	—		$	1,068
Other investments (b)	1,272		3		—		1,199		70		—			1,272
Loans, net of unearned income (residential) (d)	9		—		—		9		—		—			9
Loans held for sale (residential) (b)	61		—		61		—		—		—			61
Derivative assets - trading (b)	1,535		181		2,171		(8)		—		(809)		(f)	1,535
Fair value - OCI
Securities available for sale (b)	40,000		—		40,000		—		—		—			40,000
Derivative assets - hedging (b)(g)	66		—		(23)		—		—		89		(f)	66
Amortized cost
Held-to-maturity securities (c)	8,163		—		7,596		—		—		—			7,596
Loans, net of unearned income (d)	115,038		—		—		109,738		—		—			109,738
Loans held for sale (b)	987		—		—		987		—		—			987
Other

Cash and other short-term investments (a)	5,613		5,613		—		—		—		—			5,613
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	1,590	$	172	$	3,321	$	7	$	—	$	(1,910)	(f)	$	1,590
Fair value - OCI
Derivative liabilities - hedging (b)(g)	10		—		25		—		—		(15)		(f)	10
Amortized cost
Time deposits (e)	5,847		—		5,837		—		—		—			5,837
Short-term borrowings (a)	8,800		143		8,657		—		—		—			8,800
Long-term debt (e)	18,257		10,960		6,638		—		—		—			17,598
Other
Deposits with no stated maturity (a)	139,008		—		139,008		—		—		—			139,008


	December 31, 2021
			Fair Value
Dollars in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	701	$	—	$	701	$	—	$	—	$	—		$	701
Other investments (b)	639		24		—		543		72		—			639
Loans, net of unearned income (residential) (d)	11		—		—		11		—		—			11
Loans held for sale (residential) (b)	281		—		281		—		—		—			281
Derivative assets - trading (b)	1,887		$	71	2,096		40		—		(320)		(f)	1,887
Fair value - OCI
Securities available for sale (b)	45,364		—		45,364		—		—		—			45,364
Derivative assets - hedging (b)(g)	75		—		39		—		—		36		(f)	75
Amortized cost
Held-to-maturity securities (c)	7,539		—		7,665		—		—		—			7,665
Loans, net of unearned income (d)	100,782		—		—		100,428		—		—			100,428
Loans held for sale (b)	2,448		—		—		2,448		—		—			2,448
Other
Short-term investments - U.S. Treasury Bills (b)	—		—		—		—		—		—			—
Cash and other short-term investments (a)	11,923		11,923		—		—		—		—			11,923
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	157	$	66	$	1,610	$	7	$	—	$	(1,526)	(f)	$	157
Fair value - OCI
Derivative liabilities - hedging (b)(g)	4		—		4		—		—		—		(f)	4
Amortized cost
Time deposits (e)	3,858		—		3,866		—		—		—			3,866
Short-term borrowings (a)	761		75		686		—		—		—			761
Long-term debt (e)	12,042		11,813		705		—		—		—			12,518
Other
Deposits with no stated maturity (a)	148,714		—		148,714		—		—		—			148,714

Valuation Methods and Assumptions

(a)Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.

(b)Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” within our 2021 Form 10-K Note 6 (“Fair Value Measurements”). Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.

(c)Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.

(d)The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.

(e)Fair values of time deposits and long-term debt classified as Level 2 are based on discounted cash flows utilizing relevant market inputs.

(f)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.

(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 113 of our 2021 Form 10-K.

Discontinued assets — education lending business**.** Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves, and loans in portfolio recorded at fair value. All of these loans were excluded from the table above as follows:

Loans at carrying value, net of allowance, of $467 million ($383 million at fair value) at September 30, 2022, and $567 million ($486 million at fair value) at December 31, 2021;
Portfolio loans at fair value of $1 million at September 30, 2022, and $2 million at December 31, 2021.

These loans and securities are classified as Level 3 because we rely on unobservable inputs when determining fair value since observable market data is not available.

6. Securities

The amortized cost, unrealized gains and losses, and approximate fair value of our securities available for sale and held-to-maturity securities are presented in the following tables. Gross unrealized gains and losses represent the difference between the amortized cost and the fair value of securities on the balance sheet as of the dates indicated. Accordingly, the amount of these gains and losses may change in the future as market conditions change.


	September 30, 2022								December 31, 2021
Dollars in millions	Amortized Cost (a)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost (b)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
U.S. Treasury, agencies, and corporations	$	10,062	$	—	$	676	$	9,386	$	9,573	$	—	$	101	$	9,472

Agency residential collateralized mortgage obligations	20,706		—		3,469		17,237		21,430		99		410		21,119
Agency residential mortgage-backed securities	4,742		—		757		3,985		5,137		37		52		5,122
Agency commercial mortgage-backed securities	10,780		2		1,391		9,391		9,753		188		290		9,651
Other securities	1		—		—		1		—		—		—		—
Total securities available for sale	$	46,291	$	2	$	6,293	$	40,000	$	45,893	$	324	$	853	$	45,364
HELD-TO-MATURITY SECURITIES


Agency residential collateralized mortgage obligations	$	3,818	$	—	$	251	$	3,567	$	2,196	$	33	$	—	$	2,229
Agency residential mortgage-backed securities	185		—		18		167		164		6		—		170
Agency commercial mortgage-backed securities	2,524		1		190		2,335		2,678		118		—		2,796
Asset-backed securities (c)	1,621		—		108		1,513		2,485		—		31		2,454
Other securities	15		—		1		14		16		—		—		16
Total held-to-maturity securities	$	8,163	$	1	568		$	7,596	$	7,539	$	157	$	31	$	7,665

(a)Amortized cost amounts exclude accrued interest receivable which is recorded within Other Assets on the balance sheet. At September 30, 2022, accrued interest receivable on available for sale securities and held-to-maturity securities totaled $66 million and $18 million, respectively.

(b)Amortized cost amounts exclude accrued interest receivable which is recorded within Other Assets on the balance sheet. At December 31, 2021, accrued interest receivable on available for sale securities and held-to-maturity securities totaled $59 million and $15 million, respectively.

(c)Includes $1.6 billion of securities as of September 30, 2022, and $2.5 billion of securities as of December 31, 2021, related to the purchase of senior notes from a securitization collateralized by sold indirect auto loans.

The following table summarizes securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2022, and December 31, 2021.


	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
Dollars in millions	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
September 30, 2022
Securities available for sale:
U.S Treasury, agencies, and corporations	$	1,197	$	94		$	8,189	$	582		$	9,386	$	676

Agency residential collateralized mortgage obligations	9,673		1,489			7,562		1,980			17,235		3,469
Agency residential mortgage-backed securities	1,584		219			2,398		538			3,982		757
Agency commercial mortgage-backed securities	5,221		383			4,104		1,008			9,325		1,391

Held-to-maturity securities:


Agency residential collateralized mortgage obligations	3,407		250			9		1			3,416		251
Agency residential mortgage-backed securities	167		18			—		—			167		18
Agency commercial mortgage-backed securities	2,324		190			—		—			2,324		190
Asset-backed securities	1,511		108			1		—		(a)	1,512		108
Other securities	7		—		(a)	3		1			10		1
Total securities in an unrealized loss position	$	25,091	$	2,751		$	22,266	$	4,110		$	47,357	$	6,861
December 31, 2021
Securities available for sale:
U.S. Treasury, agencies, and corporations	$	9,078	$	98		$	243	$	3		$	9,321	$	101

Agency residential collateralized mortgage obligations	12,603		315			1,255		95			13,858		410
Agency residential mortgage-backed securities	3,793		49			178		3			3,971		52
Agency commercial mortgage-backed securities	1,645		75			3,834		215			5,479		290

Held-to-maturity securities:


Agency residential collateralized mortgage obligations	96		—		(b)	—		—			96		—


Asset-backed securities	2,450		31			1		—		(b)	2,451		31
Other securities	15		—		(b)	—		—			15		—
Total securities in an unrealized loss position	$	29,680	$	568		$	5,511	$	316		$	35,191	$	884

(a)At September 30, 2022, gross unrealized losses totaled less than $1 million for other securities held-to-maturity with a loss duration of less than 12 months and asset-backed securities held-to-maturity with a loss duration of 12 months or longer.

(b)At December 31, 2021, gross unrealized losses totaled less than $1 million for other securities held-to-maturity and agency residential collateralized mortgage obligations held-to-maturity with a loss duration of less than 12 months. At December 31, 2021, gross unrealized losses totaled less than $1 million for asset backed securities held-to-maturity with a loss duration greater than 12 months or longer.

Based on our evaluation at September 30, 2022, an allowance for credit losses has not been recorded nor have unrealized losses been recognized into income. The issuers of the securities are of high credit quality and have a history of no credit losses, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely attributed to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments.

At September 30, 2022, securities available for sale and held-to-maturity securities totaling $12.6 billion were pledged to secure securities sold under repurchase agreements, to secure public and trust deposits, to facilitate access to secured funding, and for other purposes required or permitted by law.

The following table shows our securities by remaining maturity. CMOs, other mortgage-backed securities, and asset-backed securities in the available for sale portfolio and held-to-maturity portfolio are presented based on their expected average lives. The remaining securities, in both the available-for-sale and held-to-maturity portfolios, are presented based on their remaining contractual maturity. Actual maturities may differ from expected or contractual maturities since borrowers have the right to prepay obligations with or without prepayment penalties.


September 30, 2022	Securities Available for Sale				Held to Maturity Securities
Dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	620	$	599	$	24	$	23
Due after one through five years	16,918		15,566		4,526		4,203
Due after five through ten years	21,439		17,962		2,500		2,303
Due after ten years	7,314		5,873		1,113		1,067
Total	$	46,291	$	40,000	$	8,163	$	7,596

7. Derivatives and Hedging Activities

We are a party to various derivative instruments, mainly through our subsidiary, KeyBank. The primary derivatives that we use are interest rate swaps, caps, floors, forwards, and futures; foreign exchange contracts; commodity derivatives; and credit derivatives. Generally, these instruments help us manage exposure to interest rate risk, mitigate the credit risk inherent in our loan portfolio, hedge against changes in foreign currency exchange rates, and meet client financing and hedging needs.

At September 30, 2022, after taking into account the effects of bilateral collateral and master netting agreements, we had $66 million of derivative assets and $10 million of derivative liabilities that relate to contracts entered into for hedging purposes. As of the same date, after taking into account the effects of bilateral collateral and master netting agreements and a reserve for potential future losses, we had derivative assets of $1.5 billion and derivative liabilities of $1.6 billion that were not designated as hedging instruments. These positions are primarily comprised of derivative contracts entered into for client accommodation purposes.

Additional information regarding our accounting policies for derivatives is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 113 of our 2021 Form 10-K. Our derivative strategies and related risk management objectives are described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 141 of our 2021 Form 10-K.

Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of September 30, 2022, and December 31, 2021. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as follows:


	September 30, 2022						December 31, 2021
			Fair Value(a)						Fair Value(a)
Dollars in millions	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate	$	40,624	$	(22)	$	25	$	38,654	$	39	$	4


Derivatives not designated as hedging instruments:
Interest rate	78,319		241		1,404		72,088		768		249
Foreign exchange	8,405		225		217		9,073		81		76
Commodity	17,016		1,857		1,838		14,151		1,330		1,335
Credit	116		—		4		465		1		12
Other (b)	1,484		20		37		3,330		27		11
Total	105,340		2,343		3,500		99,107		2,207		1,683
Netting adjustments (c)	—		(720)		(1,925)		—		(284)		(1,526)
Net derivatives in the balance sheet	145,964		1,601		1,600		137,761		1,962		161
Other collateral (d)	—		—		(12)		—		(1)		—
Net derivative amounts	$	145,964	$	1,601	$	1,588	$	137,761	$	1,961	$	161

(a)We take into account bilateral collateral and master netting agreements that allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related cash collateral when recognizing derivative assets and liabilities. As a result, we could have derivative contracts with negative fair values included in derivative assets and contracts with positive fair values included in derivative liabilities.

(b)Other derivatives include interest rate lock commitments related to our residential and commercial banking activities, forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when-issued securities, and other customized derivative contracts.

(c)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.

(d)Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.

Fair value hedges. During the nine months ended September 30, 2022, we did not exclude any portion of fair value hedging instruments from the assessment of hedge effectiveness.

The following tables summarize the amounts that were recorded on the balance sheet as of September 30, 2022, and December 31, 2021, related to cumulative basis adjustments for fair value hedges.


	September 30, 2022
Dollars in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	9,409	$	(606)
Interest rate contracts	Securities Available for Sale(c)	405		51



	December 31, 2021
	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	7,553	$	138
Interest rate contracts	Securities Available for Sale(c)	6,280		134

(a)The carrying amount represents the portion of the asset or liability designated as the hedged item.

(b)Basis adjustments related to de-designated hedged items that no longer qualify as fair value hedges reduced the hedge accounting basis adjustment by $7 million and $7 million at September 30, 2022, and December 31, 2021, respectively,

(c)These amounts are designed as fair value hedges under the last-of-layer method. The carrying amount represents the amortized costs basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the relationship. At September 30, 2022, and December 31, 2021, the amortized costs of the closed portfolios in these hedging relationships was $720 million and $7.7 billion, respectively.

Cash flow hedges. During the nine-month period ended September 30, 2022, we did not exclude any portion of cash flow hedging instruments from the assessment of hedge effectiveness.

Considering the interest rates, yield curves, and notional amounts as of September 30, 2022, we expect to reclassify an estimated $566 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI to income during the next 12 months. In addition, we expect to reclassify approximately $3 million of net losses related to terminated cash flow hedges from AOCI to income during the next 12 months. These reclassified amounts could differ from actual amounts recognized due to changes in interest rates hedge de-designations and the addition of other hedges subsequent to September 30, 2022. As of September 30, 2022, the maximum length of time over which we hedge forecasted transactions is 4.92 years.

The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three- and nine-month periods ended September 30, 2022, and September 30, 2021.


	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
Dollars in millions	Interest expense – long-term debt		Interest income – loans		Interest Income - securities		Investment banking and debt placement fees
Three months ended September 30, 2022
Total amounts presented in the consolidated statement of income	$	(146)	$	1,134	$	196	$	154

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	359	$	—	$	(14)	$	—
Recognized on derivatives designated as hedging instruments	(367)		—		16		—
Net income (expense) recognized on fair value hedges	$	(8)	$	—	$	2	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1)	$	(66)	$	—	$	2
Net income (expense) recognized on cash flow hedges	$	(1)	$	(66)	$	—	$	2

Three months ended September 30, 2021
Total amounts presented in the consolidated statement of income	$	(54)	$	882	$	135	$	235

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	37	$	—	$	(38)	$	—
Recognized on derivatives designated as hedging instruments	(8)		—		39		—
Net income (expense) recognized on fair value hedges	$	29	$	—	$	1	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1)	$	79	$	—	$	(1)

Net income (expense) recognized on cash flow hedges	$	(1)	$	79	$	—	$	(1)


	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
Dollars in millions	Interest expense – long-term debt		Interest income – loans		Interest Income - Securities		Investment banking and debt placement fees
Nine months ended September 30, 2022
Total amounts presented in the consolidated statement of income	$	(256)	$	2,894	$	557	$	466

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	744	$	—	$	(341)	$	—
Recognized on derivatives designated as hedging instruments	(710)		—		350		—
Net income (expense) recognized on fair value hedges	$	34	$	—	$	9	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(3)	$	16	$	—	$	9
Net income (expense) recognized on cash flow hedges	$	(3)	$	16	$	—	$	9

Nine months ended September 30, 2021
Total amounts presented in the consolidated statement of income	$	(168)	$	2,659	$	398	$	614

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	210	$	—	$	(147)	$	—
Recognized on derivatives designated as hedging instruments	(113)		—		147		—
Net income (expense) recognized on fair value hedges	$	97	$	—	$	—	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(3)	$	253	$	—	$	—

Net income (expense) recognized on cash flow hedges	$	(3)	$	253	$	—	$	—

The following tables summarize the pre-tax net gains (losses) on our cash flow hedges for the three- and nine-month periods ended September 30, 2022, and September 30, 2021, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period.


Dollars in millions	Net Gains (Losses) Recognized in OCI		Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income
Three months ended September 30, 2022
Cash Flow Hedges
Interest rate	$	(709)	Interest income — Loans	$	(66)
Interest rate	3		Interest expense — Long-term debt	(1)
Interest rate	—		Investment banking and debt placement fees	2


Total	$	(706)		$	(65)
Three months ended September 30, 2021
Cash Flow Hedges
Interest rate	$	(2)	Interest income — Loans	$	79
Interest rate	—		Interest expense — Long-term debt	(1)
Interest rate	4		Investment banking and debt placement fees	(1)


Total	$	2		$	77


Dollars in millions	Net Gains (Losses) Recognized in OCI		Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)
Nine months ended September 30, 2022
Cash Flow Hedges
Interest rate	$	(1,620)	Interest income — Loans	$	16
Interest rate	7		Interest expense — Long-term debt	(3)
Interest rate	12		Investment banking and debt placement fees	9


Total	$	(1,601)		$	22
Nine months ended September 30, 2021
Cash Flow Hedges
Interest rate	$	(144)	Interest income — Loans	$	253
Interest rate	2		Interest expense — Long-term debt	(3)
Interest rate	9		Investment banking and debt placement fees	—


Total	$	(133)		$	250

Nonhedging instruments

The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three- and nine-month periods ended September 30, 2022, and September 30, 2021, and where they are recorded on the income statement.


	Three months ended September 30, 2022								Three months ended September 30, 2021
Dollars in millions	Corporate services income		Consumer mortgage income		Other income		Total			Corporate services income		Consumer mortgage income		Other income		Total
NET GAINS (LOSSES)
Interest rate	$	11	$	—	$	(2)	$	9		$	8	$	—	$	—	$	8
Foreign exchange	12		—		—		12			12		—		—		12
Commodity	5		—		—		5			4		—		—		4
Credit	—		—		(17)		(17)			1		—		(9)		(8)
Other	—		4		30		34			—		—		—		—
Total net gains (losses)	$	28	$	4	$	11	$	43		$	25	$	—	$	(9)	$	16


	Nine months ended September 30, 2022								Nine months ended September 30, 2021
Dollars in millions	Corporate services income		Consumer mortgage income		Other income		Total			Corporate services income		Consumer mortgage income		Other income		Total
NET GAINS (LOSSES)
Interest rate	$	37	$	—	$	6	$	43		$	19	$	—	$	1	$	20
Foreign exchange	37		—		—		37			34		—		—		34
Commodity	13		—		—		13			12		—		—		12
Credit	1		—		(32)		(31)			5		—		(27)		(22)
Other	—		2		14		16			—		13		(22)		(9)
Total net gains (losses)	$	88	$	2	$	(12)	$	78		$	70	$	13	$	(48)	$	35

Counterparty Credit Risk

We hold collateral in the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises, or GNMA. Cash collateral of $31 million was netted against derivative assets on the balance sheet at September 30, 2022, compared to $100 million of cash collateral netted against derivative assets at December 31, 2021. The cash collateral netted against derivative liabilities totaled $1.2 billion at September 30, 2022, and $1.1 billion at December 31, 2021. Our means of mitigating and managing exposure to credit risk on derivative contracts is described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 141 of our 2021 Form 10-K under the heading “Counterparty Credit Risk.”

The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.


Dollars in millions	September 30, 2022		December 31, 2021
Interest rate	$	163	$	696
Foreign exchange	127		31
Commodity	1,324		1,108
Credit	—		—
Other	18		27
Derivative assets before collateral	1,632		1,862
Plus(Less): Related collateral	(31)		100
Total derivative assets	$	1,601	$	1,962

We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Given that these groups have different economic characteristics, we have different methods for managing counterparty credit exposure and credit risk.

We enter into transactions with broker-dealers and banks for various risk management purposes. These types of

transactions are primarily high dollar volume. We enter into bilateral collateral and master netting agreements with

these counterparties. We clear certain types of derivative transactions with these counterparties, whereby central

clearing organizations become the counterparties to our derivative contracts. In addition, we enter into derivative

contracts through swap execution facilities. Swap clearing and swap execution facilities reduce our exposure to

counterparty credit risk. At September 30, 2022, we had gross exposure of $443 million to broker-dealers and banks. We had net exposure of $244 million after the application of master netting agreements and cash collateral, where such qualifying agreements exist. We had net exposure of $243 million after considering $1 million of additional collateral held in the form of securities.

We enter into transactions using master netting agreements with clients to accommodate their business needs. In

most cases, we mitigate our credit exposure by cross-collateralizing these transactions to the underlying loan collateral. For transactions that are not clearable, we mitigate our market risk by buying and selling U.S. Treasuries and Eurodollar futures or entering into offsetting positions. Due to the cross-collateralization to the underlying loan, we typically do not exchange cash or marketable securities collateral in connection with these transactions. To address the risk of default associated with these contracts, we have established a CVA reserve (included in

“accrued income and other assets”) in the amount of $25 million at September 30, 2022. The CVA is calculated from

potential future exposures, expected recovery rates, and market-implied probabilities of default. At September 30, 2022, we had gross exposure of $1.5 billion to client counterparties and other entities that are not broker-dealers or banks for derivatives that have associated master netting agreements. We had net exposure of $1.4 billion on our derivatives with these counterparties after the application of master netting agreements, collateral, and the related reserve.

Credit Derivatives

We are a buyer and, under limited circumstances, may be a seller of credit protection through the credit derivative market. We purchase credit derivatives to manage the credit risk associated with specific commercial lending and swap obligations as well as exposures to debt securities. Our credit derivative portfolio was in a net liability position of $3 million as of September 30, 2022, and $11 million as of December 31, 2021. Our credit derivative portfolio consists of traded credit default swap indices and risk participation agreements. Additional descriptions of our credit derivatives are provided in Note 8 (“Derivatives and Hedging Activities”) beginning on page 141 of our 2021 Form 10-K under the heading “Credit Derivatives.”

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at September 30, 2022, and December 31, 2021. The notional amount represents the amount that the seller could

be required to pay. The payment/performance risk shown in the table represents a weighted average of the default

probabilities for all reference entities in the respective portfolios. These default probabilities are implied from

observed credit indices in the credit default swap market, which are mapped to reference entities based on Key’s

internal risk rating.


	September 30, 2022					December 31, 2021
Dollars in millions	Notional Amount		Average Term (Years)	Payment / Performance Risk		Notional Amount		Average Term (Years)	Payment / Performance Risk

Other (a)	$	—	4.1	5.54	%	$	149	13.86	3.15	%
Total credit derivatives sold	$	—	—	—		$	149	—	—

(a) Other Notional Amount is less than $1 million as of 9/30/2022.

Credit Risk Contingent Features

We have entered into certain derivative contracts that require us to post collateral to the counterparties when these contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to our long-term senior unsecured credit ratings with Moody’s and S&P. Collateral requirements also are based on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the ISDA Master Agreement) that we have signed with the counterparties. In a limited number of instances, counterparties have the right to terminate their ISDA Master Agreements with us if our ratings fall below a certain level, usually investment-grade level (i.e., “Baa3” for Moody’s and “BBB-” for S&P). At September 30, 2022, KeyBank’s rating was “A3” with Moody’s and “A-” with S&P, and KeyCorp’s rating was “Baa1” with Moody’s and “BBB+” with S&P. As of September 30, 2022, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our ratings) held by KeyBank that were in a net liability position totaled $1.1 billion, which was comprised of $315 million in derivative assets and $1.4 billion in derivative liabilities. We had $1.1 billion in cash and securities collateral posted to cover those positions as of September 30, 2022. There were no derivative contracts with credit risk contingent features held by KeyCorp at September 30, 2022.

The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of September 30, 2022, and December 31, 2021. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of September 30, 2022, and December 31, 2021, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required as of September 30, 2022, and December 31, 2021. For more information about the credit ratings for KeyBank and KeyCorp, see the discussion under the heading “Factors affecting liquidity” in the section entitled “Liquidity risk management” in Item 2 of this report.


	September 30, 2022				December 31, 2021
Dollars in millions	Moody’s		S&P		Moody’s		S&P
KeyBank’s long-term senior unsecured credit ratings	A3		A-		A3		A-
One rating downgrade	$	1	$	1	$	3	$	3
Two rating downgrades	1		1		3		3
Three rating downgrades	1		1		3		3

KeyBank’s long-term senior unsecured credit rating was three ratings above noninvestment grade at Moody’s and S&P as of September 30, 2022, and December 31, 2021. If KeyBank’s ratings had been downgraded below investment grade as of September 30, 2022, or December 31, 2021, payments of $2 million and $4 million, respectively, would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted. If KeyCorp’s ratings had been downgraded below investment grade as of September 30, 2022, or December 31, 2021, no payments would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted.

8. Mortgage Servicing Assets

We originate and periodically sell commercial and residential mortgage loans but continue to service those loans for the buyers. We also may purchase the right to service commercial mortgage loans from other lenders. We record a servicing asset if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going market servicing rate and are considered more than adequate compensation for servicing. Additional information pertaining to the accounting for mortgage and other servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets” beginning on page 114 of our 2021 Form 10-K.

Commercial

Changes in the carrying amount of commercial mortgage servicing assets are summarized as follows:


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions	2022		2021		2022		2021
Balance at beginning of period	$	647	$	600	$	634	$	578
Servicing retained from loan sales	26		31		78		88
Purchases	9		8		32		22
Amortization	(31)		(30)		(93)		(89)
Temporary (impairments) recoveries	—		—		—		10
Balance at end of period	$	651	$	609	$	651	$	609
Fair value at end of period	$	942	$	735	$	942	$	735

The fair value of commercial mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted average of the significant unobservable inputs used to determine the fair value of our commercial mortgage servicing assets at September 30, 2022, and September 30, 2021, along with the valuation techniques, are shown in the following table:


Dollars in millions		September 30, 2022						September 30, 2021
Valuation Technique	Significant Unobservable Input	Range				Weighted Average		Range				Weighted Average

Discounted cash flow	Expected defaults	0.98	%	2.00	%	1.08	%	1.00	%	2.00	%	1.15	%
	Residual cash flows discount rate	8.43	%	10.17	%	9.52	%	7.64	%	10.49	%	9.31	%
	Escrow earn rate	3.69	%	3.97	%	3.87	%	1.04	%	1.37	%	1.04	%

	Loan assumption rate	—	%	1.50	%	1.19	%	—	%	1.71	%	1.40	%

If these economic assumptions change or prove incorrect, the fair value of commercial mortgage servicing assets may also change. Expected credit losses, escrow earning rates, and discount rates are critical to the valuation of commercial mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates, and reflect historical data associated with the commercial mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. A decrease in the value assigned to the escrow earning rates would cause a decrease in the fair value of our commercial mortgage servicing assets. An increase in the assumed default rates of commercial mortgage loans or an increase in the assigned discount rates would cause a decrease in the fair value of our commercial mortgage servicing assets. Prepayment activity on commercial serviced loans does not significantly affect the valuation of our commercial mortgage servicing assets. Unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions affecting the borrower’s ability to prepay the mortgage.

The amortization of commercial servicing assets is determined in proportion to, and over the period of, the estimated net servicing income. The amortization of commercial servicing assets for each period, as shown in the table at the beginning of this note, is recorded as a reduction to contractual fee income. The contractual fee income from servicing commercial mortgage loans totaled $219 million for the nine-month period ended September 30, 2022, and $193 million for the nine-month period ended September 30, 2021. This fee income was offset by $93 million of amortization for the nine-month period ended September 30, 2022, and $89 million for the nine-month period ended September 30, 2021. Both the contractual fee income and the amortization are recorded, net, in “commercial mortgage servicing fees” on the income statement.

Residential

Changes in the carrying amount of residential mortgage servicing assets are summarized as follows:


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions	2022		2021		2022		2021
Balance at beginning of period	$	104	$	77	$	93	$	58
Servicing retained from loan sales	4		9		21		32
Purchases	—		—		—		—
Amortization	(3)		(4)		(10)		(14)
Temporary (impairments) recoveries	—		3		1		9
Balance at end of period	$	105	$	85	$	105	$	85
Fair value at end of period	$	127	$	89	$	127	$	89

The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our mortgage servicing assets at September 30, 2022, and September 30, 2021, along with the valuation techniques, are shown in the following table:


		September 30, 2022									September 30, 2021
Valuation Technique	Significant Unobservable Input	Range						Weighted Average			Range						Weighted Average

Discounted cash flow	Prepayment speed	7.05		%	44.74		%	8.09		%	8.03		%	48.88		%	11.67		%
	Discount rate	7.50		%	8.53		%	7.53		%	7.50		%	8.57		%	7.54		%
	Servicing cost	$	62.00		$	4,375		$	66.59		$	62.00		$	4,375		$	68.15

If these economic assumptions change or prove incorrect, the fair value of residential mortgage servicing assets may also change. Prepayment speed, discount rates, and servicing cost are critical to the valuation of residential mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the residential mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. An

increase in the prepayment speed would cause a decrease in the fair value of our residential mortgage servicing

assets. An increase in the assigned discount rates and servicing cost assumptions would cause a decrease in the

fair value of our residential mortgage servicing assets.

The amortization of servicing assets for September 30, 2022, as shown in the table above, is recorded as a reduction to contractual fee income. The contractual fee income from servicing residential mortgage loans totaled $27 million for the nine-month period ended September 30, 2022, and $30 million for the nine-month period ended

September 30, 2021. This fee income was offset by $10 million of amortization for the nine-month period ended September 30, 2022, and $14 million for the nine-month period ended September 30, 2021. Both the contractual fee income and the amortization are recorded, net, in “consumer mortgage income” on the income statement.

9. Leases

As a lessee, we enter into leases of land, buildings, and equipment. Our real estate leases primarily relate to bank branches and office space. The leases of equipment principally relate to technology assets for data processing and data storage. As a lessor, we primarily provide financing through our equipment leasing business. For more information on our leasing activity, see Note 10 (“Leases”) beginning on page 149 of our 2021 Form 10-K.

Lessor Equipment Leasing

Leases may have fixed or floating rate terms. Variable payments are based on an index or other specified rate and are included in rental payments. Certain leases contain an option to extend the lease term or the option to terminate at the discretion of the lessee. Under certain conditions, lease agreements may also contain the option for a lessee to purchase the underlying asset.

Interest income from sales-type and direct financing leases is recognized in "interest income — loans" on the income statement. Income related to operating leases is recognized in “operating lease income and other leasing gains” on the income statement. The components of equipment leasing income are summarized in the table below:


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions	2022		2021		2022		2021

Sales-type and direct financing leases
Interest income on lease receivable	$	16	$	13	$	47	$	59
Interest income related to accretion of unguaranteed residual asset	3		9		11		12

Total sales-type and direct financing lease income	$	19	$	22	$	58	$	71
Operating leases
Operating lease income related to lease payments	$	25	$	31	$	81	$	95
Other operating leasing gains	(6)		6		(2)		16
Total operating lease income and other leasing gains	19		37		79		111
Total lease income	$	38	$	59	$	137	$	182

10. Goodwill

Our annual goodwill impairment testing is performed as of October 1 each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. A quantitative or qualitative testing approach may be used. Additional information pertaining to our accounting policy for goodwill and other intangible assets is summarized in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Goodwill and Other Intangible Assets” beginning on page 114 of our 2021 Form 10-K.

The fair values of each reporting unit are estimated using a combination of market and income approaches. In our latest quantitative test as of October 1, 2021, the income approach utilized discounted cash flow projections for each reporting unit. The market approach consisted primarily of public company metrics but also utilized recent transactions in the financial services industry. The carrying amounts of Key’s reporting units represent the combination of regulatory and economic equity for goodwill impairment testing and management reporting purposes.

Changes in the carrying amount of goodwill by reporting segment are presented in the following table:


Dollars in millions	Consumer Bank		Commercial Bank		Total


BALANCE AT SEPTEMBER 30, 2021	$	1,761	$	912	$	2,673
XUP acquisition	—		20		20
BALANCE AT DECEMBER 31, 2021	$	1,761	$	932	$	2,693

XUP acquisition measurement period adjustment	—		1		1
GradFin acquisition	58		—		58
BALANCE AT SEPTEMBER 30, 2022	$	1,819	$	933	$	2,752

11. Variable Interest Entities

Our significant VIEs are summarized below. Additional information pertaining to the criteria used in determining if an entity is a VIE is included in Note 13 (“Variable Interest Entities “) beginning on page 153 of our 2021 Form 10-K.

LIHTC investments. We had $1.8 billion and $1.6 billion of investments in LIHTC operating partnerships at September 30, 2022, and December 31, 2021, respectively. These investments are recorded in “accrued income and other assets” on our balance sheet. We do not have any loss reserves recorded related to these investments because we believe the likelihood of any loss to be remote. For all legally binding, unfunded equity commitments, we increase our recognized investment and recognize a liability. As of September 30, 2022, and December 31, 2021, we had liabilities of $845 million and $675 million, respectively, related to investments in qualified affordable housing projects, which are recorded in “accrued expenses and other liabilities” on our balance sheet. We continue to invest in these LIHTC operating partnerships.

The assets and liabilities presented in the table below convey the size of KCDC’s direct and indirect investments at September 30, 2022, and December 31, 2021. As these investments represent unconsolidated VIEs, the assets and liabilities of the investments themselves are not recorded on our balance sheet. Additional information pertaining to our LIHTC investments is included in Note 13 (“Variable Interest Entities”) beginning on page 153 of our 2021 Form 10-K.


	Unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities		Maximum Exposure to Loss
September 30, 2022
LIHTC investments	$	7,344	$	2,469	$	2,242
December 31, 2021
LIHTC investments	$	7,839	$	3,252	$	1,985

We amortize our LIHTC investments over the period that we expect to receive the tax benefits. During the first nine months ended September 30, 2022, we recognized $142 million of amortization and $138 million of tax credits associated with these investments within “income taxes” on our income statement. During the first nine months ended September 30, 2021, we recognized $147 million of amortization and $139 million of tax credits associated with these investments within “income taxes” on our income statement.

Principal investments. Our maximum exposure to loss associated with indirect principal investments consists of the investments’ fair value plus any unfunded equity commitments. The fair value of our indirect principal investments totaled $36 million and $45 million at September 30, 2022, and December 31, 2021, respectively. These investments are recorded in “other investments” on our balance sheet. The table below reflects the size of the private equity funds in which we were invested as well as our maximum exposure to loss in connection with these investments at September 30, 2022, and December 31, 2021.


	Unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities		Maximum Exposure to Loss
September 30, 2022
Indirect investments	$	6,968	$	92	$	46
December 31, 2021
Indirect investments	$	8,437	$	178	$	57

Through our principal investing entities, we have formed and funded operating entities that provide management and other related services to our investment company funds, which directly invest in portfolio companies. These

entities had no assets at September 30, 2022, and December 31, 2021, that can be used to settle the entities’ obligations. The entities had no liabilities at September 30, 2022, and December 31, 2021, and other equity investors have no recourse to our general credit.

Additional information on our indirect and direct principal investments is provided in Note 6 (“Fair Value Measurements”) beginning on page 130 and in Note 13 (“Variable Interest Entities “) beginning on page 153 of our 2021 Form 10-K.

Other unconsolidated VIEs. We are involved with other various entities in the normal course of business which we have determined to be VIEs. We have determined that we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance or hold a variable interest that could potentially be significant. The table below shows our assets and liabilities associated with these unconsolidated VIEs at September 30, 2022, and December 31, 2021. These assets are recorded in “accrued income and other assets,” “other investments,” “securities available for sale,” “held-to-maturity securities,” and “loans, net of unearned income” on our balance sheet. Of the total balance as of September 30, 2022, $1.6 billion related to the purchase of senior notes from a securitization collateralized by sold indirect auto loans. Additional information pertaining to our other unconsolidated VIEs is included in Note 13 (“Variable Interest Entities“) under the heading “Other unconsolidated VIEs” on page 155 of our 2021 Form 10-K.


	Other unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities
September 30, 2022
Other unconsolidated VIEs	$	2,002	$	1
December 31, 2021
Other unconsolidated VIEs	$	2,827	$	1

12. Income Taxes

Income Tax Provision

In accordance with the applicable accounting guidance, the principal method established for computing the provision for income taxes in interim periods requires us to make our best estimate of the effective tax rate expected to be applicable for the full year. This estimated effective tax rate is then applied to interim consolidated pre-tax operating income to determine the interim provision for income taxes.

The effective tax rate, which is the provision for income taxes as a percentage of income before income taxes, was 18.7% for the third quarter of 2022 and 20.4% for the third quarter of 2021. The effective tax rates are less than our combined federal and state statutory tax rate of 23.7%, primarily due to income from investments in tax-advantaged assets such as corporate-owned life insurance and credits associated with renewable energy and low-income housing investments.

Deferred Taxes

At September 30, 2022, we had a net deferred tax asset of $1.9 billion, compared to a net deferred tax asset of $189 million at December 31, 2021, which are included in “accrued income and other assets” on the balance sheet. The increase in the deferred tax asset is primarily related to market fluctuations in the investment security portfolio accounted for in other comprehensive income.

To determine the amount of deferred tax assets that are more likely than not to be realized, and therefore recorded, we conduct a quarterly assessment of all available evidence. This evidence includes, but is not limited to, taxable income in prior periods, projected future taxable income, and projected future reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo change. Based on these criteria, we had a valuation allowance of $11 million at September 30, 2022, and $12 million at December 31, 2021. The valuation allowance is associated with federal and state capital loss carryforwards.

Unrecognized Tax Benefits

At September 30, 2022, Key’s unrecognized tax benefits were $46 million. As permitted under the applicable accounting guidance for income taxes, it is our policy to recognize interest and penalties related to unrecognized tax benefits in “income tax expense.”

Pre-1988 Bank Reserves Acquired in a Business Combination

Retained earnings of KeyBank included approximately $92 million of allocated bad debt deductions for which no income taxes have been recorded. Under current federal law, these reserves are subject to recapture into taxable income if KeyBank, or any successor, fails to maintain its bank status under the Internal Revenue Code or makes non-dividend distributions or distributions greater than its accumulated earnings and profits. No deferred tax liability has been established as these events are not expected to occur in the foreseeable future.

13. Acquisitions and Discontinued Operations

Acquisitions

XUP Payments. On November 19, 2021, KeyBank acquired XUP Payments, a B2B focused digital platform. The acquisition was accounted for as a business combination. As a result of the acquisition, we recognized goodwill of $20.6 million and no separately identified intangible assets were recorded. Other acquired assets and liabilities of XUP were immaterial. The valuation was final as of March 31, 2022.

GradFin. On May 2, 2022, KeyBank acquired GradFin, a public service loan forgiveness counseling provider. The acquisition was accounted for as a business combination. Consideration paid totaled $72 million consisting of $62 million in cash and $10 million in contingent consideration. As a result of the acquisition, we recognized goodwill of $58 million and other intangible assets of $12 million, with remaining assets acquired consisting primarily of cash. Other acquired assets and liabilities of GradFin were immaterial. The valuation was final as of September 30, 2022.

Discontinued operations

Discontinued operations primarily includes our government-guaranteed and private education lending business. At September 30, 2022, and December 31, 2021, approximately $467 million and $567 million, respectively, of education loans are included in discontinued assets on the Consolidated Balance Sheets. Net interest income after provision for credit losses for this business is not material and is included in income (loss) from discontinued operations, net of taxes on the Consolidated Statements of Income.

14. Securities Financing Activities

Additional information regarding our securities financing activities, including risk management activities, is provided in Note 1 (“Summary of Significant Accounting Policies”) beginning on page 107 our 2021 Form 10-K and Note 16 (“Securities Financing Activities”) beginning on page 158 of our 2021 Form 10-K .

The following table summarizes our securities financing agreements at September 30, 2022, and December 31, 2021:


	September 30, 2022								December 31, 2021
Dollars in millions	Gross Amount Presented in Balance Sheet		Netting Adjustments (a)		Collateral (b)		Net Amounts		Gross Amount Presented in Balance Sheet		Netting Adjustments (a)		Collateral (b)		Net Amounts
Offsetting of financial assets:
Reverse repurchase agreements	$	52	$	(52)	$	—	$	—	$	11	$	(6)	$	(5)	$	—
Securities borrowed	500		—		(500)		—		500		—		(500)		—
Total	$	552	$	(52)	$	(500)	$	—	$	511	$	(6)	$	(505)	$	—

Offsetting of financial liabilities:
Repurchase agreements (c)	$	122	$	(52)	$	(70)	$	—	$	173	$	(6)	$	(167)	$	—
Total	$	122	$	(52)	$	(70)	$	—	$	173	$	(6)	$	(167)	$	—

(a)Netting adjustments take into account the impact of master netting agreements that allow us to settle with a single counterparty on a net basis.

(b)These adjustments take into account the impact of bilateral collateral agreements that allow us to offset the net positions with the related collateral. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

(c)Repurchase agreements are collateralized by mortgaged-backed agency securities and are contracted on an overnight or continuous basis.

As of September 30, 2022, the carrying amount of assets pledged as collateral against repurchase agreements totaled $128 million. Assets pledged as collateral are reported in “securities available for sale” and “held-to-maturity securities” on the Consolidated Balance Sheets. At September 30, 2022, the liabilities associated with collateral pledged were solely comprised of customer sweep financing activity and had a carrying value of $70 million. The collateral pledged under customer sweep repurchase agreements is posted to a third-party custodian and cannot be sold or repledged by the secured party. The risk related to a decline in the market value of collateral pledged is minimal given the collateral's high credit quality and the overnight duration of the repurchase agreements.

15. Employee Benefits

Pension Plans

The components of net pension cost (benefit) for all funded and unfunded plans are recorded in Other expense and are summarized in the following table. For more information on our Pension Plans and Other Postretirement Benefit Plans, see Note 18 (“Employee Benefits”) beginning on page 161 of our 2021 Form 10-K.


	Three months ended September 30,				Nine months ended September 30,
Dollars in millions	2022		2021		2022		2021
Interest cost on PBO	$	7	$	6	$	20	$	18
Expected return on plan assets	(7)		(7)		(20)		(21)
Amortization of losses	4		5		11		14
Settlement loss	—		7		—		7
Net pension cost	$	4	$	11	$	11	$	18

16. Trust Preferred Securities Issued by Unconsolidated Subsidiaries

We own the outstanding common stock of business trusts formed by us that issued corporation-obligated, mandatorily redeemable, trust preferred securities. The trusts used the proceeds from the issuance of their trust preferred securities and common stock to buy debentures issued by KeyCorp. These debentures are the trusts’ only assets; the interest payments from the debentures finance the distributions paid on the mandatorily redeemable trust preferred securities. The outstanding common stock of these business trusts is recorded in Other investments on the Consolidated Balance Sheets. We unconditionally guarantee the following payments or distributions on behalf of the trusts:

required distributions on the trust preferred securities;
the redemption price when a capital security is redeemed; and
the amounts due if a trust is liquidated or terminated.

The Regulatory Capital Rules, discussed in “Supervision and regulation” in Item 2 of this report, require us to treat our mandatorily redeemable trust preferred securities as Tier 2 capital.

The trust preferred securities, common stock, and related debentures are summarized as follows:


Dollars in millions	Trust Preferred Securities, Net of Discount (a)		Common Stock		Principal Amount of Debentures, Net of Discount (b)		Interest Rate of Trust Preferred Securities and Debentures (c)		Maturity of Trust Preferred Securities and Debentures
September 30, 2022
KeyCorp Capital I	$	156	$	6	$	162	3.017	%	2028
KeyCorp Capital II	95		4		99		6.875		2029
KeyCorp Capital III	107		4		111		7.750		2029
HNC Statutory Trust III	20		1		21		4.380		2035
Willow Grove Statutory Trust I	20		1		21		4.062		2036
HNC Statutory Trust IV	18		1		19		4.603		2037
Westbank Capital Trust II	8		—		8		5.717		2034
Westbank Capital Trust III	8		—		8		5.717		2034
Total	$	432	$	17	$	449	5.316	%	—

December 31, 2021	$	466	$	17	$	483	4.271	%	—

(a)The trust preferred securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of trust preferred securities carries an interest rate identical to that of the related debenture. Certain trust preferred securities include basis adjustments related to fair value hedges totaling $17 million at September 30, 2022, and $52 million at December 31, 2021. See Note 7 (“Derivatives and Hedging Activities”) for an explanation of fair value hedges.

(b)We have the right to redeem these debentures. If the debentures purchased by KeyCorp Capital I, HNC Statutory Trust III, Willow Grove Statutory Trust I, HNC Statutory Trust IV, Westbank Capital Trust II, or Westbank Capital Trust III are redeemed before they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by KeyCorp Capital II or KeyCorp Capital III are redeemed before they mature, the redemption price will be the greater of: (i) the principal amount, plus any accrued but unpaid interest, or (ii) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined in the applicable indenture), plus 20 basis points for KeyCorp Capital II or 25 basis points for KeyCorp Capital III, or 50 basis points in the case of redemption upon either a tax or a capital treatment event for either KeyCorp Capital II or KeyCorp Capital III, plus any accrued but unpaid interest. The principal amount of certain debentures includes basis adjustments related to fair value hedges totaling $17 million at September 30, 2022, and $52 million at December 31, 2021. See Note 7 (“Derivatives and Hedging Activities”) for an explanation of fair value hedges. The principal amount of debentures, net of discounts, is included in “long-term debt” on the balance sheet.

(c)The interest rates for the trust preferred securities issued by KeyCorp Capital II and KeyCorp Capital III are fixed. The trust preferred securities issued by KeyCorp Capital I have a floating interest rate, equal to three-month LIBOR plus 74 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust III have a floating interest rate, equal to three-month LIBOR plus 140 basis points, that reprices quarterly. The trust preferred securities issued by Willow Grove Statutory Trust I have a floating interest rate, equal to three-month LIBOR plus 131 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust IV have a floating interest rate, equal to three-month LIBOR plus 128 basis points, that reprices quarterly. The trust preferred securities issued by Westbank Capital Trust II and Westbank Capital Trust III each have a floating interest rate, equal to three-month LIBOR plus 219 basis points, that reprices quarterly. The total interest rates are weighted-average rates.

17. Contingent Liabilities and Guarantees

Legal Proceedings

Litigation. From time to time, in the ordinary course of business, we and our subsidiaries are subject to various litigation, investigations, and administrative proceedings. Private, civil litigation may range from individual actions involving a single plaintiff to putative class action lawsuits with potentially thousands of class members. Investigations may involve both formal and informal proceedings, by both government agencies and self-regulatory bodies. These matters may involve claims for substantial monetary relief. At times, these matters may present novel claims or legal theories. Due to the complex nature of these various other matters, it may be years before some matters are resolved. While it is impossible to ascertain the ultimate resolution or range of financial liability, based on information presently known to us, we do not believe there is any matter to which we are a party, or involving any of our properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on our financial condition. We continually monitor and reassess the potential materiality of these litigation matters. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter, or a combination of matters, may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

Guarantees

We are a guarantor in various agreements with third parties. The following table shows the types of guarantees that we had outstanding at September 30, 2022. Information pertaining to the basis for determining the liabilities recorded in connection with these guarantees is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Contingencies and Guarantees” beginning on page 115 of our 2021 Form 10-K.


September 30, 2022	Maximum Potential Undiscounted Future Payments		Liability Recorded
Dollars in millions
Financial guarantees:
Standby letters of credit	$	4,473	$	84
Recourse agreement with FNMA	6,650		26
Residential mortgage reserve	3,298		14
Written put options (a)	3,883		251
Total	$	18,304	$	375

(a)The maximum potential undiscounted future payments represent notional amounts of derivatives qualifying as guarantees.

We determine the payment/performance risk associated with each type of guarantee described below based on the probability that we could be required to make the maximum potential undiscounted future payments shown in the preceding table. We use a scale of low (0% to 30% probability of payment), moderate (greater than 30% to 70% probability of payment), or high (greater than 70% probability of payment) to assess the payment/performance risk, and have determined that the payment/performance risk associated with each type of guarantee outstanding at September 30, 2022, is low. Information pertaining to the nature of each of the guarantees listed below is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Guarantees” beginning on page 172 of our 2021 Form 10-K.

Standby letters of credit. At September 30, 2022, our standby letters of credit had a remaining weighted-average life of 1.7 years, with remaining actual lives ranging from less than 1 year to as many as 12.2 years.

Recourse agreement with FNMA. At September 30, 2022, the outstanding commercial mortgage loans in this program had a weighted-average remaining term of 7.5 years, and the unpaid principal balance outstanding of loans sold by us as a participant was $21.7 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30.7% of the principal balance of loans outstanding at September 30, 2022. FNMA delegates responsibility for originating, underwriting, and servicing mortgages, and we assume a limited portion of the risk of loss during the remaining term on each commercial mortgage loan that we sell to FNMA. We maintain a reserve for such potential losses in an amount that we believe approximates the fair value of our liability in addition to the expected credit loss for the guarantee as described in Note 4 (“Asset Quality“).

Residential Mortgage Banking. At September 30, 2022, the unpaid principal balance outstanding of loans sold by us in this program was $11.0 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30% of the principal balance of loans outstanding at September 30, 2022.

Our liability for estimated repurchase obligations on loans sold, which is included in “accrued expenses and other liabilities” on the balance sheet, was $14 million at September 30, 2022. For more information on our residential mortgages, see Note 8 (“Mortgage Servicing Assets“).

Written put options. At September 30, 2022, our written put options had an average life of 1.8 years. These written put options are accounted for as derivatives at fair value, as further discussed in Note 7 (“Derivatives and Hedging Activities”).

Written put options where the counterparty is a broker-dealer or bank are accounted for as derivatives at fair value but are not considered guarantees since these counterparties typically do not hold the underlying instruments. In addition, we are a purchaser and seller of credit derivatives, which are further discussed in Note 7 (“Derivatives and Hedging Activities”).

Other Off-Balance Sheet Risk

Other off-balance sheet risk stems from financial instruments that do not meet the definition of a guarantee as specified in the applicable accounting guidance, and from other relationships. Additional information pertaining to types of other off-balance sheet risk is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Other Off-Balance Sheet Risk” on page 173 of our 2021 Form 10-K.

18. Accumulated Other Comprehensive Income

Our changes in AOCI for the three and nine months ended September 30, 2022, and September 30, 2021, are as follows:


Dollars in millions	Unrealized gains (losses) on securities available for sale		Unrealized gains (losses) on derivative financial instruments		Net pension and postretirement benefit costs		Total
Balance at December 31, 2021	$	(403)	$	88	$	(271)	$	(586)
Other comprehensive income before reclassification, net of income taxes	(4,380)		(1,281)		(1)		(5,662)
Amounts reclassified from AOCI, net of income taxes (a)	—		(17)		8		(9)

Net current-period other comprehensive income, net of income taxes	(4,380)		(1,298)		7		(5,671)
Balance at September 30, 2022	$	(4,783)	$	(1,210)	$	(264)	$	(6,257)

Balance at June 30, 2022	$	(3,167)	$	(733)	$	(266)	$	(4,166)
Other comprehensive income before reclassification, net of income taxes	(1,616)		(527)		(1)		(2,144)
Amounts reclassified from AOCI, net of income taxes (a)	—		50		3		53

Net current-period other comprehensive income, net of income taxes	(1,616)		(477)		2		(2,091)
Balance at September 30, 2022	$	(4,783)	$	(1,210)	$	(264)	$	(6,257)

Balance at December 31, 2020	$	567	$	476	$	(305)	$	738
Other comprehensive income before reclassification, net of income taxes	(617)		11		(2)		(608)
Amounts reclassified from AOCI, net of income taxes (a)	—		(191)		16		(175)

Net current-period other comprehensive income, net of income taxes	(617)		(180)		14		(783)
Balance at September 30, 2021	$	(50)	$	296	$	(291)	$	(45)

Balance at June 30, 2021	$	124	$	325	$	(299)	$	150
Other comprehensive income before reclassification, net of income taxes	(174)		30		(1)		(145)
Amounts reclassified from AOCI, net of income taxes (a)	—		(59)		9		(50)

Net current-period other comprehensive income, net of income taxes	(174)		(29)		8		(195)
Balance at September 30, 2021	$	(50)	$	296	$	(291)	$	(45)

(a)See table below for details about these reclassifications.

Our reclassifications out of AOCI for the three and nine months ended September 30, 2022, and September 30, 2021, are as follows:



	Three months ended September 30,				Affected Line Item in the Consolidated Statement of Income
Dollars in millions	2022		2021






Unrealized gains (losses) on derivative financial instruments
Interest rate	$	(66)	$	79	Interest income — Loans
Interest rate	(1)		(1)		Interest expense — Long-term debt
Interest rate	2		(1)		Investment banking and debt placement fees

	(65)		77		Income (loss) from continuing operations before income taxes
	(15)		18		Income taxes
	$	(50)	$	59	Income (loss) from continuing operations
Net pension and postretirement benefit costs
Amortization of losses	$	(4)	$	(5)	Other expense
Settlement loss	—		(7)		Other expense

	(4)		(12)		Income (loss) from continuing operations before income taxes
	(1)		(3)		Income taxes
	$	(3)	$	(9)	Income (loss) from continuing operations


	Nine months ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
Dollars in millions	2022		2021






Unrealized gains (losses) on derivative financial instruments
Interest rate	$	16	$	253	Interest income — Loans
Interest rate	(3)		(3)		Interest expense — Long-term debt
Interest rate	9		—		Investment banking and debt placement fees
	22		250		Income (loss) from continuing operations before income taxes
	5		59		Income taxes
	$	17	$	191	Income (loss) from continuing operations
Net pension and postretirement benefit costs
Amortization of losses	$	(11)	$	(14)	Other expense
Settlement loss	—		(7)		Other expense
Amortization of unrecognized prior service credit	1		—		Other expense
	(10)		(21)		Income (loss) from continuing operations before income taxes
	(2)		(5)		Income taxes
	$	(8)	$	(16)	Income (loss) from continuing operations

19. Shareholders' Equity

Comprehensive Capital Plan

In July 2021, the Board of Directors authorized the repurchase of up to $1.5 billion of our Common Shares, effective for the third quarter of 2021 through the third quarter of 2022. In September 2022, the Board of Directors approved the extension of the previous authorization through the third quarter of 2023. During the third quarter of 2022, activity under this authorization was limited to repurchases related to employee equity compensation programs.

Consistent with our capital plan, the Board declared a quarterly dividend of $.195 per Common Share for the third quarter of 2022.

Preferred Stock

The following table summarizes our preferred stock at September 30, 2022.


Preferred stock series	Amount outstanding (in millions)		Shares authorized and outstanding	Par value		Liquidation preference		Ownership interest per depositary share	Liquidation preference per depositary share		Third quarter 2022 dividends paid per depositary share
5.000% Fixed-to-Floating Rate Perpetual Noncumulative Series D	$	525	21,000	$	1	$	25,000	1/25th	$	1,000	$	12.50
6.125% Fixed-to-Floating Rate Perpetual Noncumulative Series E	500		500,000	1		1,000		1/40th	25		.382813
5.650% Fixed Rate Perpetual Noncumulative Series F	425		425,000	1		1,000		1/40th	25		.353125
5.625% Fixed Rate Perpetual Non-Cumulative Series G	450		450,000	1		1,000		1/40th	25		.351563
6.200% Fixed Rate Reset Perpetual Non-Cumulative Series H	600		600,000	1		1,000		1/40th	25		—

20. Business Segment Reporting

The following is description of the segments and their primary businesses at September 30, 2022.

Consumer Bank

The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint as well as healthcare professionals nationally through our Laurel Road digital brand by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, student loan refinancing, mortgage and home equity, credit card, treasury services, and business advisory services. In addition, wealth management and investment services are offered to assist non-profit and high-net-worth clients with their banking, trust, portfolio management, life insurance, charitable giving, and related needs.

Commercial Bank

The Commercial Bank consists of the Commercial and Institutional operating segments. The Commercial operating segment is a full-service, commercial banking platform that focuses primarily on serving the borrowing, cash management, and capital markets needs of middle market clients within Key’s 15-state branch footprint. It is also a significant, national, commercial real estate lender and third-party servicer of commercial mortgage loans and special servicer of CMBS. The Institutional operating segment operates nationally in providing lending, equipment financing, and banking products and services to large corporate and institutional clients. The industry coverage and product teams have established expertise in the following sectors: Consumer, Energy, Healthcare, Industrial, Public Sector, Real Estate, and Technology. The operating segment includes the KBCM platform which provides a broad suite of capital markets products and services including syndicated finance, debt and equity capital markets, derivatives, foreign exchange, financial advisory, and public finance. Additionally, KBCM provides fixed income and equity sales and trading services to investor clients.

Other

Other includes various corporate treasury activities such as management of our investment securities portfolio, long-term debt, short-term liquidity and funding activities, and balance sheet risk management, our principal

investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also include intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

The development and application of the methodologies that we use to allocate items among our business segments is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocations drivers, changes in the risk profile of a particular business, or changes in our organizational structure.

The table below shows selected financial data for our business segments for the three- and nine-month periods ended September 30, 2022, and September 30, 2021. Capital is assigned to each business segment based on a combination of regulatory and economic equity.


Three months ended September 30,	Consumer Bank						Commercial Bank						Other						Total Key
Dollars in millions	2022			2021			2022			2021			2022			2021			2022			2021
SUMMARY OF OPERATIONS
Net interest income (TE)	$	632		$	582		$	495		$	407		$	76		$	36		$	1,203		$	1,025
Noninterest income	259			288			394			477			30			32			683			797
Total revenue (TE) (a)	891			870			889			884			106			68			1,886			1,822
Provision for credit losses	37			(38)			74			(69)			(2)			—			109			(107)
Depreciation and amortization expense	22			23			28			34			18			18			68			75
Other noninterest expense	645			568			422			436			(29)			33			1,038			1,037
Income (loss) from continuing operations before income taxes (TE)	187			317			365			483			119			17			671			817
Allocated income taxes and TE adjustments	45			76			70			104			16			(6)			131			174
Income (loss) from continuing operations	142			241			295			379			103			23			540			643
Income (loss) from discontinued operations, net of taxes	—			—			—			—			2			2			2			2
Net income (loss)	142			241			295			379			105			25			542			645
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—			—			—			—
Net income (loss) attributable to Key	$	142		$	241		$	295		$	379		$	105		$	25		$	542		$	645

AVERAGE BALANCES (b)
Loans and leases	$	42,568		$	39,854		$	71,464		$	59,856		$	386		$	428		$	114,418		$	100,138
Total assets (a)	45,638			43,039			81,898			69,227			60,656			69,105			188,192			181,371
Deposits	90,044			89,278			52,272			56,401			1,913			1,237			144,229			146,916
OTHER FINANCIAL DATA
Net loan charge-offs (b)	$	17		$	35		$	27		$	(6)		$	(1)		$	—		$	43		$	29
Return on average allocated equity (b)	16.20		%	25.81		%	12.63		%	18.02		%	21.83		%	1.56		%	14.66		%	14.25		%
Return on average allocated equity	16.20			25.81			12.63			18.02			22.25			1.70			14.71			14.30
Average full-time equivalent employees (c)	8,114			7,976			2,523			2,371			7,270			6,662			17,907			17,009

(a)Substantially all revenue generated by our major business segments is derived from clients that reside in the United States. Substantially all long-lived assets, including premises and equipment, capitalized software, and goodwill held by our major business segments, are located in the United States.

(b)From continuing operations.

(c)The number of average full-time equivalent employees was not adjusted for discontinued operations.


Nine months ended September 30,	Consumer Bank						Commercial Bank						Other							Total Key
Dollars in millions	2022			2021			2022			2021			2022				2021			2022			2021
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,745		$	1,789		$	1,347		$	1,234		$	235			$	37		$	3,327		$	3,060
Noninterest income	769			798			1,192			1,379			86				108			2,047			2,285
Total revenue (TE) (a)	2,514			2,587			2,539			2,613			321				145			5,374			5,345
Provision for credit losses	88			(132)			152			(267)			(3)				(23)			237			(422)
Depreciation and amortization expense	65			61			89			101			53				64			207			226
Other noninterest expense	1,941			1,717			1,184			1,263			(78)				53			3,047			3,033
Income (loss) from continuing operations before income taxes (TE)	420			941			1,114			1,516			349				51			1,883			2,508
Allocated income taxes and TE adjustments	101			226			218			322			47				(25)			366			523
Income (loss) from continuing operations	319			715			896			1,194			302				76			1,517			1,985
Income (loss) from discontinued operations, net of taxes	—			—			—			—			6				11			6			11
Net income (loss)	319			715			896			1,194			308				87			1,523			1,996
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—				—			—			—
Net income (loss) attributable to Key	$	319		$	715		$	896		$	1,194		$	308		(d)	$	87		$	1,523		$	1,996

AVERAGE BALANCES (b)
Loans and leases	$	40,697		$	39,954		$	68,016		$	60,287		$	431			$	321		$	109,144		$	100,562
Total assets (a)	43,782			43,165			78,536			69,536			62,471				64,493			184,789			177,194
Deposits	90,939			87,667			54,768			54,309			1,559				1,047			147,266			143,023
OTHER FINANCIAL DATA
Net loan charge-offs (b)	$	62		$	105		$	59		$	81		(1)				(21)			$	120		$	165
Return on average allocated equity (b)	11.90		%	26.70		%	13.37		%	18.65		%	14.88		%		1.78		%	13.29		%	14.87		%
Return on average allocated equity	11.90			26.70			13.37			18.65			15.17				2.04			13.35			14.96
Average full-time equivalent employees (c)	8,013			8,062			2,441			2,371			7,023				6,601			17,477			17,034

(b)From continuing operations.

(c)The number of average full-time equivalent employees was not adjusted for discontinued operations.

21. Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers, by business segment, for the three- and nine-month periods ended September 30, 2022, and September 30, 2021. The development and application of the methodologies that we use to allocate items among our business segments is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocations drivers, changes in the risk profile of a particular business, or changes in our organizational structure.


	Three months ended September 30, 2022						Three months ended September 30, 2021
Dollars in millions	Consumer Bank		Commercial Bank		Total Contract Revenue		Consumer Bank		Commercial Bank		Total Contract Revenue
NONINTEREST INCOME
Trust and investment services income	$	99	$	19	$	118	$	105	$	16	$	121
Investment banking and debt placement fees	—		102		102		—		169		169
Services charges on deposit accounts	56		36		92		56		35		91


Cards and payments income	42		20		62		46		61		107




Other noninterest income	3		—		3		2		—		2
Total revenue from contracts with customers	$	200	$	177	$	377	$	209	$	281	$	490

Other noninterest income (a)					$	276					$	275
Noninterest income from Other(b)					30						32

Total noninterest income					$	683					$	797

(a)Noninterest income considered earned outside the scope of contracts with customers.

(b)Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations. Refer to Note 20 (“Business Segment Reporting”) for more information.


	Nine months ended September 30, 2022						Nine months ended September 30, 2021
Dollars in millions	Consumer Bank		Commercial Bank		Total Contract Revenue		Consumer Bank		Commercial Bank		Total Contract Revenue
NONINTEREST INCOME
Trust and investment services income	$	307	$	58	$	365	$	311	$	49	$	360
Investment banking and debt placement fees	—		316		316		—		367		367
Services charges on deposit accounts	170		109		279		145		102		247


Cards and payments income	120		49		169		135		187		322




Other noninterest income	8		—		8		5		2		7
Total revenue from contracts with customers	$	605	$	532	$	1,137	$	596	$	707	$	1,303

Other noninterest income (a)					$	824					$	874
Noninterest income from Other(b)					86						108
Total noninterest income					$	2,047					$	2,285

(a)Noninterest income considered earned outside the scope of contracts with customers.

We had no material contract assets or contract liabilities as of September 30, 2022, and September 30, 2021.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of KeyCorp

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of KeyCorp as of September 30, 2022, the related consolidated statements of income, comprehensive income, changes in equity for the three-and nine-month periods ended September 30, 2022 and 2021, the related consolidated statements of cash flows for the nine-month periods ended September 30, 2022 and 2021, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of KeyCorp as of December 31, 2021, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 22, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived

Basis for Review Results

These financial statements are the responsibility of KeyCorp's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to KeyCorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



Cleveland, Ohio
November 1, 2022

Previous: Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations · Next: Item 3. Quantitative and Qualitative Disclosure about Market Risk